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      Clusters of Entrepreneurship
      08 Oct 2009Working Paper Summaries

      Clusters of Entrepreneurship

      by Edward L. Glaeser, William R. Kerr and Giacomo A. M. Ponzetto
      Economic growth is highly correlated with an abundance of small, entrepreneurial firms. This relationship is even stronger looking across industries within cities, and has been taken as evidence for competition spurring technological progress, product cycles where growth is faster at earlier stages, and the importance of entrepreneurship for area success. Any of these interpretations is possible, however, and the only thing that we can be sure of is that entrepreneurial clusters exist in some areas but not in others. This paper first documents systematically some basic facts about average establishment size and new employment growth through entrepreneurship, then analyzes entry and industrial structures at the region and the city levels using the Longitudinal Business Database. Key concepts include:
      • There is a remarkably strong correlation between smaller average firm size and subsequent employment growth due to start-ups.
      • Evidence does not support the view that regional differences in demand for entrepreneurship are responsible for these entrepreneurial clusters.
      • Instead, the evidence suggests that spatial differences in the fixed costs of entrepreneurship and/or in the supply of entrepreneurs best explain cluster formation.
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      Author Abstract

      Employment growth is strongly predicted by smaller average establishment size, both across cities and across industries within cities, but there is little consensus on why this relationship exists. Traditional economic explanations emphasize factors that reduce entry costs or raise entrepreneurial returns, thereby increasing net returns and attracting entrepreneurs. A second class of theories hypothesizes that some places are endowed with a greater supply of entrepreneurship. Evidence on sales per worker does not support the higher returns for entrepreneurship rationale. Our evidence suggests that entrepreneurship is higher when fixed costs are lower and when there are more entrepreneurial people.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: September 2009
      • HBS Working Paper Number: 10-019
      • Faculty Unit(s): Entrepreneurial Management
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      William R. Kerr
      William R. Kerr
      Dimitri V. D'Arbeloff - MBA Class of 1955 Professor of Business Administration
      Unit Head, Entrepreneurial Management
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