Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/28749 
Year of Publication: 
2008
Series/Report no.: 
CEPR Discussion Paper Series No. 6945
Publisher: 
Centre for Economic Policy Research (CEPR), London
Abstract: 
In this paper we investigate the determinants of entrepreneurial activity in a cross section of German regions for the period 1998-2005. Departing from the knowledge spillover theory of entrepreneurship, the focus of our analysis is on the role of the regional environment and, in particular, knowledge and cultural diversity. Our main hypothesis is that both, knowledge and diversity, have a positive impact on new firm formation. As the determinants of regional firm birth rates might differ considerably with respect to the necessary technology and knowledge input of new businesses, we consider start-ups at different technology levels. The regression results indicate that regions with a high level of knowledge provide more opportunities for entrepreneurship than other regions. Moreover, while sectoral diversity tends to dampen new firm foundation, cultural diversity has a positive and highly significant impact on technology oriented start-ups. This suggests that the diversity of people is more conducive to entrepreneurship than the diversity of firms. We conclude that regions characterized by a high level of knowledge and cultural diversity form an ideal breeding ground for technology oriented start-ups.
JEL: 
M13
O18
R11
Document Type: 
Working Paper

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