Entrepreneurial Communities

Entrepreneurial activity tends to generate the kinds of economic outcomes that matter to us as a society, such as greater production, earnings, wealth, and jobs. Some regions are more entrepreneurial than others, and the success rate of entrepreneurial activity also varies geographically. This section expands on the research on regional dynamics of entrepreneurship.

Introduction

We observe that some nations and some regions within nations have more entrepreneurial activity than others, and that in some nations and regions entrepreneurial activity is more often successful in generating the kinds of economic outcomes we tend to care about as a society, such as greater production, earnings and wealth, and jobs. Policy attention to entrepreneurship as an instrument for economic improvement has been expanding over the past 30 years (Eisinger 1995) (OECD 2003); it is now pervasive in the United States at the federal, state, and local government levels and continues to spread.

Scholars have many explanations for why regional conditions might affect and be affected by both the incidence and success of entrepreneurial activities, including relationships between entrepreneurship and economic growth, industrial composition, economic dynamism and adaptation, and innovation. We do not know yet which of these explanations hold, and in which regions and to what degree. Neither do we know how successful are the various policies that are being engaged to influence these mechanisms in attempts to support entrepreneurship in order to improve economic outcomes.

Discussion

Regions Affect Entrepreneurship

Some regions host more entrepreneurial activity than others (Glaeser and Kerr 2009). This has been the subject of much theoretical exposition and substantial but largely inconclusive empirical testing, including examinations of selected cases from which generalization is problematic (Stough and Nijkamp 2007). There are many regional factors that might and perhaps do affect localized entrepreneurial activity.

Regional economic and industrial structure. The industrial composition of the regional economy is thought to be a crucial influence on entrepreneurship. Certain sectors spur more innovation, produce more spinoffs, or provide more stimulus or resources for new firm startup than others (Feldman, Link, and Siegel 2002) (Malecki 1997). High technology and knowledge-intensive industries are often considered strong bases for entrepreneurship (Audretsch and Feldman 2004).

Industrial organization and market structure may affect entrepreneurship, both across the regional economy and within its component sectors and industries. Economies of scale that lead to greater resource availability support more innovation and entrepreneurship.  So does the diversification of local markets, including labor, by broadening the scope of available inputs (Malecki 1997).

Life-cycle concepts present another potentially important regional factor. The position of the region within its economic life cycle, or perhaps more plausibly, the position of regionally important industries along distinct but interconnected industrial and product life cycles, provides a reasonable mechanism for regional entrepreneurship differentials. Earlier life-cycle stages ought to entail more entrepreneurial activity (Audretsch and Feldman 1996) (Meier and Baldwin 1957)

Entrepreneurial ecosystem. Since the operating environment of the entrepreneur is spatially constrained, typically more so than for large or established firms, local conditions are key factors governing the quantity of regional entrepreneurial activity and its relative success (Malecki 1997). (Innovative milieu and national and regional innovation systems are similar though not identical terms, see Simmie 2003). The entrepreneurial ecosystem contains several key elements, such as a pool of entrepreneurs, incubators, financial capital, the public sector, and also sources of ideas and knowledge, such as institutions of higher education, military facilities, public research laboratories, medical institutions, and established firms and industries (Neck, Meyer, Cohen, and Corbett 2004) (Isenberg 2013). These are the primary sources for specialized talent and expertise, and are also the origins of spinoff enterprises (Klepper 2001) (Klepper and Thompson 2010).

Both public and private supports, ranging from industry associations and entrepreneurship networks to a wide variety of public programs (e.g., mentoring, public financing, market and export assistance, business planning advice, shared facilities), are available to differing degrees across regions (McConnell, McFarland, and Common 2012). Incubators and accelerators are physical facilities that aim to cultivate fledgling enterprises via common cost reductions. Research and science parks provide physical proximity to knowledge sources such as research institutions and/or other firms. Government and regulatory approaches toward entrepreneurship, or toward particular industries, affect the business climate and general expectation of support that can encourage or entice new business activity. Jurisdictions throughout the United States and other developed nations (as well as developing nations to a lesser degree) seek to entice or attract entrepreneurial activity through public services and promotion for the mixture of benefits that are believed to accrue (see below) (Goldstein 2009) (State Science and Technology Institute 2014).

Agglomeration advantages (i.e., external economies of scale, scope, or complexity) may be classified as a feature of the entrepreneurial environment (Parr 2002). Benefits of locating in proximity to other similar firms, or in areas with greater total economic activity, include spillovers of knowledge, greater depth and diversity in input markets (including labor) and output markets, and public attention and support (Marshall 1910) (Feser 1998). Industrial clusters, a finer characterization of co-location involving interfirm and institutional linkages, influence the scope and breadth of interfirm relationships and resources available to startup and innovative firms (Martin and Sunley 2003) (Cortright 2006) (Motoyama 2008).

Entrepreneurship culture. Localized attitudes toward entrepreneurship as a career option and as a social activity define regional entrepreneurship culture, which in turn impacts personal choices to engage in entrepreneurial activities as well as investor confidence. Entrepreneurship culture incorporates perspectives on risk-taking, innovation, career self-determination, business regulation, etc. The degree to which entrepreneurship is viewed socially as legitimate, including acceptance of risk-taking and failure, varies widely among nations and to a lesser extent among regions within nations. Attitudes toward entrepreneurship may be passed along or modified through social interactions, though in practice entrepreneurship culture seems to change slowly (Glaeser, Sacerdote, and Scheinkman 2003) (Krueger, Linan, and Nabi 2013). Entrepreneurs and entrepreneurial talent may be attracted by general amenities and cultural characteristics as well (Florida 2002).

Spatial features. Some spatial features of regions are relevant to entrepreneurship (Malecki 1997). International borders, urban and intraurban morphology, physical obstacles, transportation and communication networks, and centrality within an urban hierarchy help determine the localized availability of knowledge and the ease with which knowledge disseminates within and from outside a region. These traits also affect flows of human capital and talent, including entrepreneurs and potential entrepreneurs. Over time, greater information and easier communication and transportation are lowering barriers to the movement of people and ideas.

Linkages to other regions may represent a double-edged sword. On the one hand, extra-regional linkages bring ideas, innovations, and resources from other regions (Rychen and Zimmermann 2008); on the other hand, such linkages may facilitate the outflow of the fruits of local entrepreneurship, such as maturing businesses opening production sites in locations offering lower input costs or laxer regulation. Interlinked regions may develop a greater extent of spatial differentiation with respect to entrepreneurship along with industry and regional economic life cycles.

Entrepreneurship Affects Regions

The effects of entrepreneurship on locales—the opposite causal relationship from above—attracts ongoing theoretical and empirical research with direct relevance for economic development policy. At a general level, entrepreneurship is thought to lead to economic success in the forms of faster growth, greater earnings and wealth, job creation, and others, by converting into productive activity economic opportunities that would otherwise be overlooked (Acs and Armington 2004). More specifically, entrepreneurial activity may take advantage of prospects that established firms do not uncover or choose to disregard for a variety of reasons, including technological lock-in, investments in current products and processes, and bureaucratic sclerosis. To the extent that market failures such as information asymmetry, knowledge spillovers, and insufficient investment collateral depress risk-taking below social optimal levels, the risks undertaken by informed entrepreneurs increase economic efficiency on the whole (Martin and Scott 2000). Entrepreneurship may be a relatively quick route to replacing declining industries and substituting for lost jobs. The act of entrepreneurship may itself confer benefits of dynamism and churn in the regional economy, counteracting tendencies of established firms toward stability and possible stagnation (Audretsch and Pena-Legazkue 2012) (Christopherson and Clark 2007c).

Entrepreneurship provides personal and societal benefits that are not primarily economic in nature. There are psychological and social advantages to self-employment, at least for some proportion of the population. Even for those who do not choose to engage in entrepreneurial opportunities, the possibility represented by entrepreneurship enlarges the variety of economic options within society, which may be viewed as one component of economic freedom (Sen 1999).

On the other hand, some argue that entrepreneurial activity may not always be beneficial. Entrepreneurial actions may lead to economic "dead ends," or may change the trajectories of industries toward market imperfections and inefficiencies (Leibenstein 1979). Some opportunities may entail conflict with established, contributing firms in the region. A different concern is that entrepreneurship, endorsed and supported heterogeneously across cultural and socioeconomic divisions, may exacerbate social inequalities.

Future Research

Entrepreneurship both influences and is influenced by regional characteristics, and many pathways are contemplated as conduits for these connections. Therefore, we could gain much scholarly understanding and guidance for public policy by verifying the existence and ascertaining the relative importance of the various postulated relationships in practice. For example: 

  • For which industries (and in which regions) do industry-specific regional factors overwhelm general economic conditions and public support in determining the entrepreneurial climate? (For which industries and regions is the opposite true?) 
  • How does active entrepreneurship alter local cultural values, possibly establishing a virtuous (or vicious) cycle whereby (the lack of) acceptance of and support for entrepreneurship breeds additional (lessened) success and enhancement (further diminishment) of entrepreneurial culture (Krueger, Linan, and Nabi 2013)
  • To what extent do local versus nonlocal networks and linkages contribute to entrepreneurship through the conveyance of ideas, resources, and motivation (Shearmur and Bonnet 2011)?

Systematic empirical analyses, conducted across regions, industries, conditions, and time periods, are required to produce generally applicable conclusions.

Policymakers, economic development practitioners, and those that advise them strive to improve support for economically advantageous entrepreneurship. Some of the most important policy questions are how the different regional factors affecting entrepreneurship augment or impede efforts to stimulate entrepreneurship, whether there are subsets of entrepreneurs that produce superior outcomes (such as user entrepreneurs, see Shah, Smith, and Reedy 2012), and how to increase the involvement of underengaged populations such as women and minority groups in entrepreneurship. Long disputed in the economic development arena, the contention that it behooves the public sector to target certain sectors and industries rather than offering unfocused support applies to entrepreneurship policy as well, and introduces the issue of how best to "pick winners."

Data Sources

Systematic analysis requires data on entrepreneurial activity and regional characteristics that are comparable across geographic regions. Entrepreneurship information comes mainly from sources of firm data, often with inference made to entrepreneurship from new or newly documented businesses. In the United States, these include publicly available federal government data (e.g., Annual Survey of Manufactures, Census of Services, Survey of Business Owners, Statistics of U.S. Businesses), confidential firm- or establishment-level data underlying the public data (e.g., Statistical Business Register, Longitudinal Business Database), and private sector marketing databases [e.g., Hoover's and Business Insight (formerly MarketPlace) from Dun & Bradstreet, National Establishment Time Series dataset from Walls & Associates (compiled longitudinally from Dun & Bradstreet cross-sectional data), industry-specific products such as BioScan Directory by BioWorld]. Regional data come from a broad variety of sources; in the United States the majority of these are public databases collected or compiled at the federal level.

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Page last edited 22 September 2016