This paper examines the role of regional clusters in regional entrepreneurship. We focus on the distinct influences of convergence and agglomeration on growth in the number of start-up firms as well as in employment in these new firms in a given region-industry. While reversion to the mean and diminishing returns to entrepreneurship at the region-industry level can result in a convergence effect, the presence of complementary economic activity creates externalities that enhance incentives and reduce barriers for new business creation. Clusters are a particularly important way through which location-based complementarities are realized. The empirical analysis uses a novel panel dataset from the Longitudinal Business Database of the Census Bureau and the U.S. Cluster Mapping Project (Porter, 2003). Using this dataset, there is significant evidence of the positive impact of clusters on entrepreneurship. After controlling for convergence in start-up activity at the region-industry level, industries located in regions with strong clusters (i.e. a large presence of other related industries) experience higher growth in new business formation and start-up employment. Strong clusters are also associated with the formation of new establishments of existing firms, thus influencing the location decision of multiestablishment firms. Finally, strong clusters contribute to start-up firm survival.
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Clusters, Convergence, and Economic Performance
October 2010
Working Paper Number:
CES-10-34
This paper evaluates the role of regional cluster composition in the economic performance of industries, clusters and regions. On the one hand, diminishing returns to specialization in a location can result in a convergence effect: the growth rate of an industry within a region may be declining in the level of activity of that industry. At the same time, positive spillovers across complementary economic activities provide an impetus for agglomeration: the growth rate of an industry within a region may be increasing in the size and strength (i.e., relative presence) of related economic sectors. Building on Porter (1998, 2003), we develop a systematic empirical framework to identify the role of regional clusters ' groups of closely related and complementary industries operating within a particular region in regional economic performance. We exploit newly available data from the US Cluster Mapping Project to disentangle the impact of convergence at the region-industry level from agglomeration within clusters. We find that, after controlling for the impact of convergence at the narrowest unit of analysis, there is significant evidence for cluster-driven agglomeration. Industries participating in a strong cluster register higher employment growth as well as higher growth of wages, number of establishments, and patenting. Industry and cluster level growth also increases with the strength of related clusters in the region and with the strength of similar clusters in adjacent regions. Importantly, we find evidence that new industries emerge where there is a strong cluster environment. Our analysis also suggests that the presence of strong clusters in a region enhances growth opportunities in other industries and clusters. Overall, these findings highlight the important role of cluster-based agglomeration in regional economic performance.
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Spatial Organization of Firms: Internal and External Agglomeration Economies and Location Choices Through the Value Chain
September 2012
Working Paper Number:
CES-12-33
We explore the impact of geographically bounded intra-firm spillovers (internal agglomeration economies) and geographically bounded inter-firm spillovers (external agglomeration economies) on firms' location strategies. Using data from the Census Bureau's Longitudinal Business Database and the U.S. Cluster Mapping Project, we analyze organic expansions of biopharmaceutical firms (by both new establishments and employment increase in existing establishments) in the U.S. in 1993-2005. We consider all activities in the value chain and allow location choices to vary by R&D, manufacturing, and sales. Our findings suggest that (1) internal and external agglomeration economies have separate, positive impacts on location, with relevant differences by activity; (2) internal economies of agglomeration arise within an activity (e.g., among plants) and across activities (e.g., between manufacturing and sales); (3) the effects of internal economies across and within activities vary by activity and type of organic expansion; and (4) across-activity internal economies are asymmetric.
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The Geographic Concentration of New Firm Formation and Human Capital: Evidence from the Cities
February 2003
Working Paper Number:
CES-03-05
The role of education and human capital externalities is a key variable in theories of economic growth. However, the mechanism by which these externalities are realized has not been fully investigated. We examine the relationship between area differences in the levels of human capital and subsequent differences in new firm start-up rates. Firm start-ups are usually based on an innovation (in product, process, or market) that derives from utilization of new knowledge. We find that the new firm start-up rates in areas that function as integrated labor and consumer markets (city plus surrounding commuter area) are (1) positively related to the share of adults with college degrees, and also (2) positively related to higher levels of existing establishments in the same industry and area sector. The finding that higher concentrations of existing establishments in the same industry segment were strongly associated with higher startup rates suggests that spillover of relevant knowledge from other local business owners/managers and researchers within each industry contributes to greater innovation and growth in the area.
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Incidence and Performance of Spinouts and Incumbent New Ventures: Role of Selection and
Redeployability within Parent Firms
September 2021
Working Paper Number:
CES-21-27
Using matched employer-employee data from 30 U.S. states, we compare spinouts with new ventures formed by incumbents (INCs). We propose a selection-based framework comprising idea selection by parents to internally implement ideas as INCs, entrepreneurial selection by founders to form spinouts, and managerial selection to close ventures. Consistent with parents choosing better ideas in the idea selection stage, we find that INCs perform relatively better than spinouts, and more so with larger parents. Regarding the entrepreneurial selection stage, we find evidence consistent with resource requirements being a greater entry barrier to spinouts and greater information asymmetry promoting spinout formation. Parents' resource redeployment opportunities are associated with lower relative survival of INCs, consistent with their being subject to greater selection pressures in the managerial selection stage.
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Human Capital of Spinouts
January 2015
Working Paper Number:
CES-15-06
This study examines how the human capital of spinout founders and the performance of parent
firms affect the success of spinouts by using a matched employer-employee dataset of new ventures covering 7 SIC 1-digit sectors in the United States. Our data cover 29,100 spinouts and 379,800 new ventures formed by lone entrepreneurs in 23 states between 1992 and 2005. We evaluate several components of human capital: outcomes of human capital investments vs. human capital investments, task-related human capital vs. non-task-related human capital, and individual human capital vs. group capital, and examine whether these types of human capital affect spinout performance differently. We find that spinout founder's earnings (an outcome of human capital investment) and industry experience (task-related human capital) prior to spinout formation have strong positive correlations with spinout performance, as measured by size, wage and growth rate. We also find that group experience of spinout founders prior to spinout formation has a positive correlation with spinout performance, though this effect is slightly weaker and smaller than those of spinout founder's earnings and industry experience. The effects of these three measures of human capital are mostly present after controlling for parent firm establishment fixed effects. We find some evidence that the size of parent firm establishments has a positive correlation with spinout performance, but this effect does not hold after controlling for parent firm fixed effects. Finally, we find that founder's earnings, industry experience, group experience and parent firm size are more important during the early stage of spinout formation.
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WHAT DO I TAKE WITH ME?: THE MEDIATING EFFECT OF SPIN-OUT TEAM SIZE AND TENURE ON THE FOUNDER-FIRM PERFORMANCE RELATIONSHIP
April 2013
Working Paper Number:
CES-13-17
Our study examines the mediating effect of spin-out team characteristics on the relationship between founder quality and parent and spin-out performance. Since the ability to transfer or recreate complementary assets is a critical determinant of performance, we theorize and show that founders with greater ability impact both parent firm and spin-out performance by assembling teams that represent strong complementary human capital. Using linked employee-employer US Census data from the legal services industry, we find founding team size and tenure mediate the founder quality effect. Our findings have practical implications for both managers of existing firms and aspiring founders as it relates to their human resource strategies: the factor most salient to performance is not the individual quality per se, but the manner in which it impacts the transfer and spillover of complementary human capital.
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Spinout Formation: Do Opportunities and Constraints Benefit High Capital Founders?
June 2015
Working Paper Number:
CES-15-07
We examine the role of human capital in employees' decisions to leave their parent firms andform spinouts. Using a large sample of individuals who formed spinouts in manufacturing industries between 1992 and 2005, and their co-workers who did not, we find that after controlling for age, education level, gender and alien status, individuals with higher human capital (measured as their earnings or experience) are more likely to form spinouts. We then examine the impact of industry opportunities and constraints on the propensity of high human capital individuals to form spinouts. Counterintuitively, we find that both industry constraints (measured as industry capital intensity) and opportunities (industry R&D intensity) reduce the propensity of higher human capital individuals to form spinouts. We interpret these results as being consistent with the argument that high human capital founders are more likely to choose larger, more capital-intensive projects than low human capital individuals, and thus face greater constraints. On the other side, R&D intensive industries appear to present abundant entrepreneurial opportunities, allowing low human capital individuals to identify their own opportunities thus decreasing the relative advantage of high human capital individuals.
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Human Capital, Parent Size and the Destination Industry of Spinouts
October 2019
Working Paper Number:
CES-19-30
We study how spinout founders' human capital and parent size relate to founders' propensity to stay in the same industry as their parents or to go outside the industry. Individuals with high human capital face a higher performance penalty if they form spinouts outside the parent industry, but they also face greater deterrence from large parents if they stay in that industry. Using matched employer employee data on spinout founders and their coworkers, we find that individuals with higher human capital are less likely to form spinouts in distant industries than in the parent's industry. Further, we find that as parent size increases, such individuals are less likely to form spinouts in the parent's industry and more likely to form spinouts in distant industries.
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What Do I Take With Me: The Impact of Transfer and Replication of Resources on Parent and Spin-Out Firm Performance
February 2011
Working Paper Number:
CES-11-06
Focusing on entrepreneurial ventures created by employees leaving a firm, our study examines the differential impact of knowledge transfer and knowledge spillovers on both parent and spin-out performance. While extant research often uses knowledge transfer and spillover interchangeably, our study distinguishes between the two based on the 'rivalness' of the relevant knowledge. We theorize that both knowledge transfer (proxied by the size of the exiting employee team) and knowledge spillovers (proxied by the experience of the exiting employee team) will aid spin-out performance. However, knowledge transfer, being more rival, will have a greater adverse impact than knowledge spillovers on parent firm performance. Using U.S. Census Bureau linked employee-employer data from the legal services industry, we find support for our hypotheses. Our study thus contributes to extant literature by highlighting a key dimension of knowledge ' rivalness ' and the differential competitive dynamics effect of resources with varying degrees of rivalness.
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Tracing the Sources of Local External Economies
August 2004
Working Paper Number:
CES-04-13
In a cross-sectional establishment-level analysis using confidential secondary data, I evaluate the influence of commonly postulated sources of localized external economies'supplier access, labor pools, and knowledge spillovers'on the productivity of two U.S. manufacturing sectors (farm and garden machinery and measuring and controlling devices). Measures incorporating different distance decay specifications provide evidence of the spatial extent of the various externality sources. Chinitz's (1961) hypothesis of the link between local industrial organization and agglomeration economies is also investigated. The results show evidence of labor pooling economies and university-linked knowledge spillovers in the case of the higher technology measuring and controlling devices sector, while access to input supplies and location near centers of applied innovation positively influence efficiency in the farm and garden machinery industry. Both sectors benefit from proximity to producer services, though primarily at a regional rather than highly localized scale.
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