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Entrepreneurship, Information, and Growth
Devin Bunten1, Stephan Weiler2, Stephan Weiler3
1University of California, Los Angeles.
Journal of Regional Science
|August 13, 2016
Summary
Entrepreneurial activity, including business births and deaths, generates valuable marketplace information that fuels economic growth. This study confirms that local business dynamics significantly boost entrepreneurship and employment, especially in metropolitan areas.
Area of Science:
- Economics
- Regional Science
- Entrepreneurship Studies
Background:
- Economic growth models often overlook the role of information generated by entrepreneurial activities.
- Entrepreneurial successes and failures create marketplace information that can influence future economic decisions.
- Regional variations in business dynamics, such as establishment births and deaths, represent a key source of this information.
Purpose of the Study:
- To investigate the contribution of entrepreneurial "marketplace information" to economic growth within a regional endogenous growth framework.
- To empirically test the hypothesis that regional variations in establishment births and deaths positively impact subsequent entrepreneurship and economic growth.
- To address potential endogeneity issues using instrumental variables.
Main Methods:
- Utilized a regional endogenous growth framework.
- Empirically identified entrepreneurial information with regional establishment birth and death rates.
- Employed instrumental variables based on historic mining activity to account for endogeneity.
- Analyzed data for US counties and metropolitan areas.
Main Results:
- Local establishment birth and death rates are significantly and positively correlated with subsequent entrepreneurship in US counties.
- The information spillover component of local establishment dynamics positively affects entrepreneurship and employment growth.
- Establishment births positively impact future employment growth across all counties.
- Establishment deaths positively impact future employment growth within metropolitan counties, supporting the information hypothesis.
Conclusions:
- Entrepreneurial marketplace information, derived from business dynamics, is a significant driver of regional economic growth.
- Policies fostering business dynamism can enhance entrepreneurship and employment.
- The findings highlight the importance of local information asymmetries in shaping economic trajectories.