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Business Economics
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Small Bus Econ (2014) 42:77-98
DOI 10.1007/sl 1 187-012-9462-8
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78 A. Barreneche García
specific section on
This paper is organized as follows: ent
Sect. 2 presents a
Commission 2010).
concise review of previous work and discusses ways of
In parallel with
understanding these
the determinants of entrepreneurship to
entrepreneurship, rec
propose the hypotheses. Section 3 describes the dataset
understanding of
used in the analysis and describe how itsthe
underlying
neurial activity. Acade
structure was analyzed in order to identify six general
gress through an indices.
dimensions (factors) and build representative ex
dimension, and
Section 4 presents advan
the econometric models and anal-
it possible ysis,
to outlines the evidence and presents relevant th
narrow
from robustness checks. Section 5 discussesto
countries the contributionreg
has of these
enabled results to policy-making. Finally, Sect. 6
researchers
the role of socio-econo
contains concluding remarks including the limitations
neurial dynamism.
of this study and opportunities for future research. Th
these efforts; it aims t
and enrich the vision
areas of 2 Background: entrepreneurship
both business economics
This study investigate
influence Thethe European Commission's rate of
approach to entrepreneur-
Audretsch et al. (2002) these can be classified as ship policy-making is manifested in the Small Business
supply- and demand-side elements, actual and equi- Act drafted in 2008. The Act consists of ten principles
librium rates of entrepreneurship, institutions and guiding the conception and implementation of policies at
culture. These elements are characterized using a the European and national level. Its goal is to "improve
dataset consisting of 21 indicators drawn from 184 the overall policy approach to entrepreneurship and to
cities in 20 European countries in three time periods: promote small and medium enterprise (SME) growth"
1999-2002, 2003-2006 and 2007-2010. The data (European Commission 2008). The aim was to harmo-
structure is analyzed using a principal component
nize the administrative and legal environment for SMEs
analysis (PCA) in order to construct representative across Europe, facilitating conditions for creating and
indices (six in this case). These indices are used in arunning them. Although all European Union Member
cross-sectional analysis to model entrepreneurship in
States have acknowledged the importance of imple-
menting the guidelines, approaches and results vary
cities under a dynamic perspective using the rate of
widely from nation to nation (European Commission
business creation. It finds that city size, self-employ-
ment, and tertiary education have a significant and2010). Should it be needed, political motivation for
positive impact on the number of new business
encouraging entrepreneurship can be found in an
registrations. Furthermore, it finds that capital cities
extensive body of literature which suggests that it brings
have an advantage over other cities, independently of
several benefits for economic development.
size. Aside these empirical findings, this paper con- The general consensus among economists is that
tributes to the literature in several ways. First, technological
it change and innovation are the principal
explores the relationship between self-employmentdrivers of economic growth (Aghion and Durlauf 2006;
Barro and Sala-i-Martin 2003). Entrepreneurship has
and business creation as proxies for entrepreneurship.
It discusses and models to what extent individuals in
been identified as a key (albeit not exhaustive) source
"own-account" work can be viewed as an input for theof innovation (Acs and Audretsch 2005) and, in some
creation of new companies. Second, it proposes ainstances, a significant source of knowledge spillover
ranking of cities for benchmarking purposes in termsand economic growth (Audretsch 2004; Sternberg and
of entrepreneurial dynamism and six dimensions of Wennekers 2005). van Praag and Versloot (2007)
determinants. Third, this paper enables policy-mak-reviewed 87 articles published in high-impact journals
ers - interested in promoting entrepreneurship at theon the economic value of entrepreneurship. These
city-level - to distinguish between context-specific quantitative studies attempted to discern the economic
factors (e.g., city size) and those which may be contribution of entrepreneurship. Most of the studies
influenced by policy (e.g., tertiary education). showed that new businesses grew faster than their more
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Analyzing the determinants of entrepreneurship in European cities 79
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80 A. Barreneche García
- Supply(Sect.
estimation side , which provides the potential
4.1) for
between self-employm
entrepreneurs to act upon these opportunities;
cause a - Individual decision making , which includes
significant per-
div
sonal attributes which influence the individual
entrepreneurship dete
tendency to engage in entrepreneurship;
- Actual and equilibrium rates , which relate to
2.2 The determinants
considerations from the literature
natural (optimal) and new business dynamism in
the given context;
- Institutions , which relates to policies that influence
Having considered the economic benefits of entrepre-
entrepreneurial activity; and
neurship, we now focus on the factors that affect
- Culture , which includes the societal attributes that
business creation, in particular at the level of the city.
affect the individual tendency to engage in
Regarding empirical works, there have traditionally
entrepreneurship.
been two main strands in entrepreneurial research that
can be distinguished by the preferred unit of analysis The following sub-sections include the theoretical
(Storey 1991). The first approach has focused on considerations and empirical findings. Hypotheses are
comparisons at the industrial level and has investi- derived for the relationship between business creation
gated the role of sectoral characteristics. The second and tertiary education, self-employment and factors of
strand has focused on businesses and aims to under- agglomeration. Thereupon, the section concludes with
stand the influence of the macro-economic environ- other factors emphasized by the literature.
ment on the rate of new business creation.
Recently, however, the spatial dimension of entre- 2.2.7 The role of tertiary education
preneurial research has become more fine-grained.
While previously limited to inter-country variations, Education is an important supply-side factor, as it
newly available data has enabled research into the encourages the development of entrepreneurial skills
differences at regional (Reynolds et al. 1995; Audretsch and attitudes (Reynolds et al. 1999; Gavron et al.
and Fritsch 2002) and city level (Rosenthal and Ross 1998). It promotes the awareness of commercial
2010; Doms et al. 2010; Belitski and Korosteleva opportunities and entrepreneurship as a career choice.
2010). These studies have emphasized that entrepre- Furthermore, education (particularly at the tertiary
neurs do not work in social, cultural or economic level) provides individuals with knowledge that can be
isolation. They are either encouraged or hindered embodied in new products or services.
depending on the local societal and organizational Several studies have investigated the role of
infrastructure. Entrepreneurship occurs in a specific education in the rate of entrepreneurship in United
environment in which the entrepreneur finds collabo- States urban zones, e.g., Doms et al. (2010) and
rators (business partners) and an audience (customers). Glaeser (2007): self-employment in cities; Reynolds
These spatial characteristics make it more fruitful to et al. (1995): business creation in labor-market areas.3
seek to understand the determinants of entrepreneurship These studies reported higher entrepreneurial rates in
at the level of the city or the region rather than nations. areas with a more highly educated population. In
The geographic approach has, in turn, brought together particular, the Doms et al. study indicated a preference
both industry and business-based approaches. for entrepreneurs to establish themselves in areas with
Audretsch et al. (2002) proposed an eclectic frame- a highly educated workforce; the reported contribution
work to classify entrepreneurship determinants, of education was found to be stronger as the level of
encompassing theory and empirical findings from education rose. Similarly, Reynolds et al. (1995)
"various disciplines and several levels of analysis found the presence of educated, mid-career adults to
(micro, meso and macro)" (Freytag and Thurik 2006). be a significant precursor to firm births.
The Framework consists of six basic elements: Belitski and Korosteleva (2010), however, found
that only lower levels of education significantly
- Demand side , which creates opportunities for new
businesses through consumers' needs for goods
and services; 3 Aggregations of U.S. counties based on commuting patterns.
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Analyzing the determinants of entrepreneurship in European cities 81
in in
contributed to the entrepreneurship rate a given area (Acs and Varga 2005). Furthermore,
European
cities. As in Doms et al. (2010) and Glaeser (2007), and business infrastructure have
market proximity
the authors used self-employment as a proxy
shown tomeasure
positively affect entrepreneurship (Briiderl
and Preisendörfer
of entrepreneurship. Following the argument in Singh1998). Positive relationships have
(1996), they infer that highly educated
beenindividuals
reported in the United States (Reynolds et al.
1995) and
prefer paid employment to self-employment, European cities (Belitski and Korosteleva
particu-
2010). This
larly in countries with lower GDP per capita. literature suggests that city size has an
Despite
this finding, most literature points toward a positive
accelerating impact upon the business creation rate.
effect. The first hypothesis thus postulates asthe
Hence, follows.
following third hypothesis is proposed.
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82 A. Barreneche García
engagement than
major corporations, the
which brings additional human U
complexity
capital and,has a nega
in turn, higher productivity to capital cities
levels; and,
(Crouch andremarkab
Galés 2012). This suggests that the
financial capital status is associated withdid
support additional economic
no
Freytag and Thurik
activity in cities, which may also be reflected in(20
higher
setting (Europe
rates of entrepreneurship. and the
the influence of cult
entrepreneurship and ac
and Thurik3 Dataset: the Eurostat Urban Audit
(2008), they
a country-aggregate p
individual level.
The They
Eurostat Urban Audit dataset provides informa- r
provided tion and better
a standardized metrics related to various
exp
actual aspects of
rates of the quality of life in European cities
entrepr
found that(Eurostat 2012). It provides a comprehensive set of
regulations
freedom, a communist
indicators which help to describe the socio-economic
expectancy, and
environment social
for entrepreneurship.4 In order to under-
entrepreneurship.
stand the determinants of entrepreneurship in Euro-
More specifically
pean cities New business registered to in
was selected as the
property performance variable, which
rights offers a dynamic
was fo
preneurial activity
approach (A
to entrepreneurship. The dataset included
Korosteleva 2010),
184 cities in 20 European countrieswhil
in the years
has been 1999-2010. The source data isto
shown divided into have
three
2009). In addition, Estrin and Mickiewicz (2010) quadrennial periods: 1999-2002, 2003-2006 and
demonstrated that in European countries, the existence 2007-20 1 0. A total of 246 observations were obtained.
of institutions inherited from the Soviet Union The extraction process yielded a total of 21 indicators,
decreased the rate of entrepreneurship. This obstacle
which described the various aspects of entrepreneur-
ship covered in the previous section. Table 1 displays
remained despite formal institutions making signifi-
cant progress in supporting market activities; thethis
selected indicators, their classification according to
suggests that informal institutions lag behind in
the framework proposed by Audretsch et al. (2002)
matters such as attitudes, individual disposition
and their corresponding summary statistics.
towards entrepreneurship, and social norms. Before analyzing how these local indicators may
Rosenthal and Ross (2010) looked at the relation-
explain entrepreneurship, careful attention should be
ship between crime and entrepreneurship in the given
retail,to the delimitation of spatial units. This study
wholesale, and restaurant sectors in five cities in the the Eurostat concept of Local Administrative
follows
Unit
United States. Remarkably, they found a higher rate of(LAU) level 2 (former NUTS 5 regions),
corresponding to the administrative boundaries of
new business start-up in areas of high criminality,
although retailers were more likely to establish
the city (Eurostat 2004). It is important to note that
themselves in safer locations than wholesalers. A
economic activity often overpasses these political
similar distinction was found between low and high-
boundaries. The 'total population' indicator provides
end restaurants, the latter preferring areas with the amount of people living within the city, but does
lower
not include surrounding communities outside of the
criminality. These findings suggested that entrepre-
neurs' location preferences were sensitive to crime
city limits.5 It would be possible for the surrounding
rates. Belitski and Korosteleva (2010), on the other
hand, found that the criminality rate had an overall
4 Further details of Eurostaťs Urban Audit data collection can
negative effect in entrepreneurship.
be found in Eurostat (2004).
Lastly, according to Lever (1993) capital cities
5 However, paid employment indicators consider the jobs
have higher rates of economic growth than offered
non- inside city limits, including employees who commute.
capitals. An economic advantage may be explained
Forby
'total employment/population in working age,' some
the governmental institutions and headquarters of
observations exceed 100 %.
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Analyzing the determinants of entrepreneurship in European cities 83
Demand side
Employment in mining, manufacturing and energy, % of total 246 22.26 8.19 6.9 44.1
Employment in construction, % of total 246 6.12 2.78 2 17.8
Employment in trade, hotels and restaurants, % of total 246 18.54 3.24 8.7 32.6
Employment in transport and communication, % of total 246 6.97 2.32 2.4 14.7
Employment in secondary sector industries, % of total 246 16.15 7.17 3.7 35.8
Employment in tertiary sector industries, % of total 246 76.70 8.65 50.5 92.5
Supply side
Total land area (km2), in log 246 5.25 0.83 2.53 7.86
Total population, in log 246 12.58 0.85 10.95 15.79
Demographic young-age dependence, in % 246 34.47 7.38 23.20 71.10
Demographic old-age dependence, in % 246 24.13 4.77 8.90 38.20
Average employment per company, in log 246 2.55 0.80 0.64 4.88
Full/part-time employment, in % 246 8.58 12.78 1.51 89.11
Total employment/population in working age, in % 246 77.67 20.65 34.12 168.55
Students in upper and further education per 1,000 inh, in log 246 4.08 0.53 2.10 5.46
Students in tertiary education per 1,000 inh, in log 246 4.45 0.66 1.90 5.95
Actual and equilibrium rates
Pre-existing companies per 1000 inh, in log 246 3.49 0.80 0.71 5.23
Self-employment rate, in % 246 10.30 3.19 3 23
Institutions and culture
Employment public admin., health and education, % of total 246 33.81 6.65 20.2 52.1
Prop, of male elected city representatives, in % 246 68.62 10.69 47 100
Car thefts per 1,000 inh 246 3.85 3.55 0 19.8
Number of domestic burglary per 1 ,000 inh 246 3.82 3.33 0 23
Source Author's calculations based on Eurostat (2012)
make
agglomeration economies to influence it difficult
business crea- to derive policy implica
tion within the city.6 In Sect. 4.2, a evidence.
robustnessFor
testinstance assuming (for t
argument)
considers this possibility by leveraging that under a regional perspective
on the concept
rates (1954).
of market potential introduced by Harris are found detrimental to entrepren
An advantage of using administrativeregional level.isIt would be unclear whet
boundaries
incidence
an emphasis on political responsibility. of criminality in the suburbs a
This sampling
creation
criteria means that every city indicator of businesses
is under the at the city's core. A
tiveregional
jurisdiction of local authorities. Larger boundaries thus provide a more fine-g
indi-
cators aggregate additional populations and areas,
of analysis compared to regions.
skewing the values in an unknown direction.
Most ofThis
themay
gathered indicators are straigh
The two supply side indicators, demograp
age dependence (YD) and demographic old-age
6 Eurostat (2004) acknowledged comparability limitations of dependence (OD) capture the age distribution of the
LAU administrative boundaries. As a solution, Eurostat also population in a given city. YD measures the proportion
aggregates data into Larger Urban Zone (LUZ) spatial units. In of the population aged under 20 as a ratio of the
general, this unit is approximated using NUTS level 3 data,
population aged 20-65. Similarly, OD calculates the
which corresponds to the administrative region surrounding the
given city. During this paper's writing, several of the included proportion of the population aged over 65 as a ratio of
variables were not available in LUZ spatial units. the population aged 20-65.
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84 A. Barreneche García
y
the Institutions and Culture categories are me
POP 20years > .v > 65years
The limitation in this dimensions needs to be
acknowledged, as ideally the detailed, specific char-
OD = -^l > 65years
POP 20years > .v > 65years
acteristics of the historical, temporal, institutional,
spatial and social context would be taken into account
It is worth looking into the definition of as
New business
they provide opportunities and limitations for
registered as it is the selected proxy for business creation
entrepreneurship (Welter 2011). Following the
and, moreover, to address its relationship to taken
approach self- by earlier studies (e.g., Freytag and
employment. As stated in Eurostat (2004), business
Thurik 2006) we assume cultural and institutional
registration in a given city refers to elements
the birth (e.g.,of
the national taxation regime) are
enterprises in a given city7 and, in addition, the act of
captured in cross-regional and, with more precision,
moving into that city.8 This latter element of the
in cross-country effects. Finally, although most cities
definition moves away from the measurement of of the three time periods, several
appear in only one
business creation: the re-establishment of a large
cities appear in more than one. In the Urban Audit, the
company into another location should not beavailability
data regarded for each country for a given year is
as the creation of a new company. However, in practice,
roughly homogeneous, e.g., all French city data
the indicator has only centered in firm births since it has
corresponds to the 1999-2002 period.12 In the econo-
business registers as statistical base Eurostat (2007).9
metric analysis presented in Sect. 4, time heterogene-
Eurostat considers individuals to be self-employed
ity is taken into account.
if they derive income from their own account and if
The composition of the dataset is shown in Fig. 1,
they do not have a remunerated job as a which
main indicates
activitythe number of city observations per
(Eurostat 1996). This includes not only managers
country. The of
figure shows that the dataset is hetero-
companies but also farmers, foresters, fishermen;
geneous. Germany has the most city observations -
shop-owners, craftsmen; and professionals (e.g.,
double law- in France, which takes second
the number
yers, medical practitioners, and accountants) (Eurostat
place. Using the United Nations geographical classi-
2004). The definition reflects the discussion in Sect.
fication of countries (United Nations 2012), the
2.1: while new companies are founded by of
structure self-
the dataset can be characterized as:
employed individuals, self-employment in itself does
43 % western Europe, 26 % northern Europe, 20 %
not necessarily imply business ownership.
eastern Europe, and the remaining 1 1 % southern
Three points should be noted regardingEurope.
the eclectic
The full list of cities surveyed can be found in
framework. First, as this study takesAppendix
a dynamic1 . Another factor that should be taken into
approach at an aggregate city level, Individual deci-
account is the distribution of time periods: 122 (49 %)
sion making variables are excluded, as these arecity
of the more observations are from 1999-2002, 112
relevant to income-choice models (Freytag
(45and Thurik
%) from 2003-2006 and the remaining 14 (6 %)
2006; Grilo and Thurik 2008).10 Secondly, the avail-
from 2007-2010.
able institutional quality indicators deal mostly with
informal elements, which are commonly seentheas
3. 1 Structure data via PCA
cultural11 (North 1990). In view of this constraint,
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Analyzing the determinants of entrepreneurship in European cities 85
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 60 62
13 Note that this example deals with positive correlations, 14 Note, for example, the correlation of -0.5147 between
although strong negative correlations would also violate the young-age dependence and Factor 6 'tertiary education and high
assumption of linear independence. employment' in Table 2.
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86 A. Barreneche García
Table 2 PC A of selected Eu
Demand side
Employment in mining, manufacturing and energy, % of 0.97 0.12 -0.10 -0.07 0.03 -0.05 0.02
total
Employment in construction, % of total 0.43 0.2 1 -0.06 -0. 1 1 0.57 -0.25 0.37
Employment in trade, hotels and restaurants, % of total 0.03 -0.34 0.05 0.26 0.67 0.07 0.36
Employment in transport and communication, % of total -0.027 0.56 0.16 0.13 -0.15 0.41 0.45
Employment in secondary sector industries, % of total 0.95 0.06 -0.09 -0.04 -0.18 0.04 0.05
Employment in tertiary sector industries, % of total -0.95 -0.11 0.09 0.09 -0.11 0.11 0.04
Supply side
Total land area (km2), in log -0.20 0.18 0.68 -0.03 0.04 -0.28 0.39
Total population, in log -0.14 -0.05 0.83 0.09 0.04 0.22 0.23
Demographic young-age dependence, in % 0.01 0.15 -0.09 0.70 -0.06 -0.51 0.21
Demographic old-age dependence, in % -0.08 - 0.51 0.36 -0.44 -0.04 0.03 0.40
Average employment per company, in log -0.28 -0.86 -0.01 0.06 0.05 0.19 0.14
Full/part-time employment, in % 0.35 0.31 -0.39 0.08 0.34 0.27 0.43
Total employment/population in working age (ratio) -0.39 -0.32 -0.03 -0.15 0.11 0.63 0.31
Students in upper and further education per 1 ,000 inh, 0.09 0.49 -0.41 -0.14 -0.41 0.20 0.36
in log
Students in tertiary education per 1,000 inh, in log 0.08 0.27 -0.28 0.00 -0.13 0.40 0.67
Actual and equilibrium rates
Pre-existing companies per 1,000 inh, in log 0.18 0.86 0.01 -0.03 0.02 -0.01 0.23
Self-employment rate, in % 0.03 -0.05 0.00 -0.20 0.73 0.17 0.39
Institutions and culture
Employment in public admin., health and education, % of -0.67 0.02 -0.33 0.00 -0.3 1 -0.49 0. 1 1
total
Prop, of male elected city representatives, in % 0.33 0.20 -0.50 0.20 0.29 -0.01 0.48
Car thefts per 1 ,000 inh -0.21 0.04 0.37 0.67 -0.07 -0.07 0.36
Number of domestic burglary per 1,000 inh -0.33 -0.24 -0.02 0.77 0.06 0.20 0.20
Correlation with new business registered, in log -0.12 0.16 0.66 -0.21 -0.01 0.28
average employment per company. The first This dimension also indicates SMEs are more
char-
acteristic of this dimension therefore indicates
plentiful in the transport and communication sect
companies with a small number of employees and in cities with higher ratios of students in upp
and further non-tertiary education (ISCED leve
(SMEs). Accordingly, this factor can be labeled
3-4). As in Belitski and Korosteleva (2010), low
as SME prevalence. This dimension is also nega-
levels of education (ISCED 1-2) tend to be associ
tively related to the demographic old-age depen-
ated with higher business ownership rather th
dence and only has a slight correlation with young-
age dependence. This suggests that SMEs are
higher education (ISCED 5-6). Table 2 indicates t
factor is positively correlated with the rate of busin
prevalent in European cities where a larger proportion
of the population is of working age (20-65 years).
registrations.
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Analyzing the determinants of entrepreneurship in European cities 87
Proportions of employment Southern Europe Western Europe Eastern Europe Northern Europe
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88 A. Barreneche García
Explained variable
New business registered, in log 246 7.45 1.05 5.08 10.64
Identified factor indices
Secondary-sector oriented economy 246 0 1 - 1 .99 2.67
SME prevalence 246 0 1 -2.51 2.24
Large city 246 0 1 -2.68 2.82
Crime and young-age pop. 246 0 1 - 1 .82 3.60
Self-employment 246 0 1 -1.93 3.84
Tertiary education and high employment 246 0 1 -3.65 3.42
Dummy variables
1999-2002 observation 246 0.49 0.50 0 1
6 3 4. 1 Empirical results
ni = ^ ßk
k= 1 /=1 Table 5 contains the results of the regressions of the
(Model4) models described above. This table displays the
estimated coefficients for each model. The last column
6 16
(Model 5a) takes into account nonlinear effects, by
ni = ^ ßkIki
k= 1 /=1 including a quadratic term (see Sect. 4.2). As evidence
(Model5) of heteroskedasticity was found in every specification,
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Analyzing the determinants of entrepreneurship in European cities 89
Variables Coefficients
the Huber-White Sandwich estimator was used to concurring with other studies in United States urban
calculate robust standard errors. zones (Reynolds et al. 1995; Glaeser 2007; Doms et al.
The first hypothesis, stating that higher participation 2010). This index also indicates a positive effect from
in tertiary education is positively related to business higher levels of employment, as reported by Reynolds
creation, is supported. The 'tertiary education and high et al. ( 1 995). Looking at the size of the public sector (the
employment' index yielded positive coefficients with p proportion of the workforce employed in public admin-
values less than 1 % in all regressions. This suggests istration, health and education), Sect. 3.1 demonstrated
there is more new business creation in cities with higher that this variable has a negative impact on this index.
numbers of university students (rather than lower This relationship can be applied here to infer that cities
ISCED levels), differing from the results reported by that do not rely on the public sector for employment may
Belitski and Korosteleva (20 1 0) for European cities and be more entrepreneurial.
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90 A. Barreneche García
18 Refer to the following section for more details. detailed data collection and further research is needed
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Analyzing the determinants of entrepreneurship in European cities 91
significant
in order to clarify the cultural and institutional estimations; contrary to business
factors
which provoke these effects. tion, there is no evidence to suggest that t
status
These results suggest that city rankings provides
can be seen as a favorable environment for
a benchmarking tool through the use of neurship in terms of "own-account" work.
derived indices
of ICTon
that have a statistically significant influence companies
entre- did not yield additional p
power
preneurial activity. Appendix 1 illustrates the for
idea;self-employment.
it When the s
ranks cities according to new businessrestricted
registeredtoand
western cities, SME prevalenc
includes each of the constructed indices.
size The
havesignifi-
no statistical significance. For this
cance of the country dummy variables rate of high
and the self-employment
R2 was only associ
business
benchmark suggest that it is more accurate registrations.
to compare
cities within countries rather than at a continental
Column or5even
adds the share of ICT companies
regional level. Appendix 1 only shows5,
rankings for
while column 6 additionally restricts the
western European
countries with more than ten city observations as the cities. Only column 6
significant effect
inclusion of countries with fewer city observations may from ICT companies, sugge
only in
be misleading. When looking at the rankings in this region do higher shares of thi
Appen-
dix 1 , it is important to take into accountcompanies helps to spark additional business
the time period
of the city in question, as different cities
the in the same for self-employment, redu
estimations
country may refer to different periods sample to this region did not yield lower ex
(e.g., Germany).
Moreover, for each country, cities may appear
power more than
in the factor indices, nor reduced R 2 v
once depending on the time period (e.g., Slovakia).
4.2 Robustness checks
Additional specifications take the self-employment
rate as the explained variable in Model 5 and include
new business registered as an explanatory variable,
In Sect. to
3, we considered the spatial unit's boundary
further explore the relation between these twoand
definition proxies
the possible repercussions in the analysis.
of entrepreneurship. The results are included
The economic areasin
which (to different extents) surpass
Table 6. Column 1 includes the basic swapboundaries,
administrative of may impact business crea-
variables. With the purpose of identifying differences
tion within the city's core. Exogenous effects could bias
between the indicators, we consider thethe share of ICT
estimations presented above. To check for this
companies19 to the analysis as a possible source
possibility, of was designed to compare two
a control
entrepreneurship in column 2. Columns agglomeration economies, i.e., within and outside the
3 and 4 restrict
this analysis to western European cities.
city. It is based on the "market potential" function
As expected from the results in introduced
Table 5, by
new
Harris (1954): P - ^(Af/d).The mar-
business registered provides positive and significant
ket potential P equals the sum of accessible market
coefficients. SME prevalence shows a positive effect
sizes (M) divided by the geographic distances to those
with a p value lower than 5 %. This suggests
markets that self- could be seen as agglomeration
(d). Regions
of markets
employment rates are high in cities which have uponmore a given area. Likewise (albeit at a
SMEs than large companies, which is understandable
different scale) cities agglomerate districts upon
considering that, by definition, SMEs are run
certain by self-
distances. Following Head and Mayer (2000),
employed individuals. Contrary to business
the sum creation,
of distances may be approximated as an area
city size indicates a negative effect(A).20
(10 Accordingly,
% signifi- the market size can be regarded as
cance). This result suggests that smaller cities
the gross have product (GDP) of the correspond-
domestic
higher self-employment rates. In other words,
ing area. Wefactors
refer to this proxy for market potential as
economic density:
of agglomeration may favor higher proportions of paidD = (GDP/A).
employment. Also in contrast with Table 5 results,
coefficients for the 'capital city' dummy did not yield
20 This approximation assumes that producers and consumers
are evenly distributed within the area (A). However, the goal
19 Logarithmic transformation. Summary statistics: obs = here
264, is to capture the differences in magnitude of agglomeration
mean = 3.82, std. dev. = 0.93, min = -0.51 and max = 6.50. economies across two different areas, i.e., within and outside
Source Eurostat (2012). city boundaries.
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92 A. Barreneche García
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Analyzing the determinants of entrepreneurship in European cities 93
y! ß(m+24)Aw
ing the variance inflation factors in each of the
m= 1 models;23 none of the results provided cause for
concern. Appendix 3 replicates the cross-sectional
This term adds the squared values of each factor index
analysis with averaged observations for cities which
( lm ) to the regression. Table 9 of Appendix 2 shows some
appeared more than once. In Appendix 3, Fig. 4 shows
significant quadratic effects. 'Large city' (1 % level)
the number of unique cities per country while
indicates increasing returns from economies of scale.
Table 11 displays the results from this modified
This means that not only do larger cities have higher rates
sample.24 In relation to Table 5, coefficients conserve
of new business creation, but also at an accelerating rate.
equal signs and their values remain mostly stable. It is
Levels of self-employment (5 % level) demonstrated, on
however worth noting that the 10 % level significance
the other hand, decreasing marginal returns. In other
is lost in Model 5 for the index 'secondary-sector
words, as the rate of self-employment in cities increased,
oriented economy', while the 'SME prevalence' index
the positive effect on entrepreneurship decreased.
gained explanatory power (10 % level).
Extreme values of self-employment may be deviating
Finally, Fig. 3 compares the performance of the
from optimal levels of entrepreneurship as noted by cross-sectional estimates of Models 1 and 5a. These
Carree et al. (2002) and Audretsch et al. (2002). Fur-
two graphs plot the actual values of new business
thermore, high values may indicate lack of work
registered versus those predicted by the respective
opportunities rather than business ownership (Earle and
models.
Sakova 2000). A similar phenomenon is shown by the
'tertiary education and high employment' index (5 %
level). The positive contribution of this index increases
5 Policy implications
before reaching the average score, thereupon decreasing.
This may represent certain dynamics in the exclusivity of
These results suggest three policy approaches to the
knowledge, e.g., at lower levels of attainment in cities
promotion of entrepreneurship in cities: encouraging
there may be more opportunities for highly-educated
individuals to find knowledge applications.
The Durbin-Wu-Hausman test was used to con-
23 vif(Bļ)= 1/(1 - /??), where R 2 corresponds to the R2 of the
sider the possibility of endogeneity in the models; the
regression in which the explanatory variable associated with B¡
becomes the explained variable, as a function of all the other
explanatory variables of the original model. A large R2 suggests
22 The squares of the estimated values for new business a high goodness of fit and so, in this case, multicollinearity in the
registered (nf) were found to have a significant explanatory original model.
power for the observed values (nf). This suggests the presence of 24 Since only one observation is included per city, time effects
non-linear effects in the specification (Model 5). are not included in these regressions.
Springer
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94 A. Barreneche García
I1'5" 1
* , 2 1- « -
-2-10123 -3-2-1013
J ^ ^ " I 1-5- ^
a» 4W.-Í O)
< I
_2. I
3
-4 -2 024 -2 0 2 4
Index for Large City Index for Crime and Young-Age Population
» Residuals
fi 1 ^ ^ ^ ^ ^
a> '' ' i :;> S o, • : -■ '
<
-2 ■
3
<
-2
3
-
H
-2 0 2 4 -4 -2 0 4
Index for Self-Employment Index for Tertiary Education and High Employment
» Residuals
tertiary education,
important su
i
levering economies
nities offer
mission
development of 200
hom
implementation
these thr
appro
Springer
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Analyzing the determinants of entrepreneurship in European cities 95
Model 1 Model 5a
12 -I 12-
4- 4-
l,i 1 i 1 1 i 1 i i
56789 10 56789 10
Fig. 3 Actual versus estimated values. Source author's calculations based on Eurostat (201
^ Springer
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96 A. Barreneche García
To conclude with
highlight the need a
to account, compile and investigate fi
further the institutional althoug
differences, and cultural indicators which
â Springer
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Analyzing the determinants of entrepreneurship in European cities 97
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