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Local Origins of Business Formation

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Abstract
Using comprehensive administrative data on business applications, we find that startups per capita exhibit enormous variation across counties and tracts in the United States. We decompose this spatial variation into two components: variation in business ideas per capita and in their rate of transition to startups. Both components matter for the variation in startups per capita. Furthermore, local demographic, economic, financial, and business conditions account for a significant fraction of the variation in startups per capita and in its components. In particular, income, education, age, and foreign-born share are strongly and positively associated with idea generation and transition rate. The relationship between local conditions and ideas generally differs in magnitude from the relationship with the rate at which these ideas transition into employer businesses. Interestingly, certain conditions are positively associated with ideas but negatively with transition rates. The predicted rank of locations based only on observable local conditions closely relates to the actual ranking of locations in terms of startups per capita, making it possible to characterize high-startup locations using observable local conditions alone.

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  • Emin M. Dinlersoz & Timothy Dunne & John Haltiwanger & Veronika Penciakova, 2023. "Local Origins of Business Formation," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2023(7), pages 1-12, November.
    • Handle: RePEc:fip:a00068:97634
    DOI: 10.29338/ph2023-7
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    Cited by:

    1. Lucas, David S., 2024. "The effect of regime change on entrepreneurship: A real options approach with evidence from US gubernatorial elections," Journal of Business Venturing, Elsevier, vol. 39(4).
    2. Emin Dinlersoz & Can Dogan & Nikolas Zolas, 2024. "Starting Up AI," Working Papers 24-09, Center for Economic Studies, U.S. Census Bureau.

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    More about this item

    Keywords

    entrepreneurship; firm entry; business formation; business dynamism; economic geography;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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