Direct Employment Effects of New Firms

Abstract

Recent published studies suggest a positive relationship between new business formation and economic development (Audretsch and Fritsch, 2003; Audretsch and Keilbach, 2004; Fritsch and Mueller, 2004). Regions are, however, heterogeneous units and differ with respect to determinants of growth.¹ These determinants also affect firm formation and firm growth, and one may, therefore, expect remarkable regional differences in the employment contribution of new firms. For example, Brixy and Grotz (2004) show that the cohort employment of Eastem German start-ups increased more than that of Western German start-ups in mature stages. Related to this discussion, particularly firms occupying market niches and entering into formative stages of new industries are seen as driving forces for positive employment effects in the long run. New or better products, processes, and services increase the technological competitiveness of an economy and, hence, its economic growth. Technology orientation and knowledge intensity are major characteristics of firms occupying market niches forcing its performance and survival (see Almus et al., 1999; Almus, 2001; Agarwal and Audretsch, 2001).

Financial support from the Deutsche Forschungsgemeinschaft through grant STA 169/10-2 is gratefully acknowledged. Special thanks to Matthias Almus and Susanne Prantl for preparing the ZEW Entrepreneurship Study and to Georg Licht, Jürgen Egeln, and Helmut Fryges for valuable comments and discussion.