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The Geography of Firm Dynamics: Measuring Business Demography for Regional Development
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Transcript of The Geography of Firm Dynamics: Measuring Business Demography for Regional Development
THE GEOGRAPHY OF FIRM DYNAMICS -
MEASURING BUSINESS DEMOGRAPHY
FOR REGIONAL DEVELOPMENT
OECD Working Party on Territorial Indicators Paris, 5 December 2017
• Assessment of the main methods in measuring
subnational business demography
• Development of a new database for OECD
regions
• Analysis of key issues and trends in business
dynamics at the regional level
Objectives of the Project
• New businesses constitute, on average, 10% of all firms but regional variation is substantial (~9% for employer firms, 12 countries)
– Concentrated in urban and most productive regions (frontier)
– Associated with better local governance, more developed R&D infrastructure, lower financing constraints, and more educated local labour force
• Exact information on location of employment is important for understanding the impact of business dynamics on employment
– Using enterprise-level data can be susceptible to a bias from a region’s actual share of national employment
– Headquarter bias: pronounced in capital-city regions
• New businesses contribute significantly to regional employment growth
– Business births can create up to 8% new employment
– Higher regional firm dynamics also indirectly boost employment growth in existing firms
Key Findings
Business births, TL3 (2014) Capital regions drive business creation
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• On average, 10.2% new firm but large cross-country and within-
country variation.
• Firms births slightly lower for employer firms at 9.4%.
Employer vs. non-employer firms Large country differences in importance of non-employer
firms
• Different national tax codes and legal systems
• Ratio of regional birth rates in employer and non-employer firms not
always strong
• Most consistent and comparable approach: employer firms only
Share of employer firms by country
Deaths and births, TL3 Highly urbanized regions are more dynamic (higher churn)
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Birth and death rates as well as shares of births, deaths and active firms
by degree of urbanization, all firms
Urban regions more dynamic (larger birth and death rates) and
accounting for disproportionate share of firm deaths and especially
births
Breakdown by sector
Urban-rural difference reflects sectoral composition of regional
economies
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Birth shares by sector (TL3, 2014, or last available)
• Large regional variation in employment creation rates, ranging from
8% to 0.2%. Even within countries, differences are considerable.
• Great potential for job creation, enhanced by indirect effects
Employment creation by new firms, TL3 Significant within-country differences in created employment
Employment creation rates by new employer enterprises (2014)
Indirect employment effects of firm dynamics Employment growth in existing firms
• Interaction of firm dynamics (churn of firm) and EU structural
funds:
• Firms that received EU structural funds grew more if they were
located in regions with more dynamic firm environments
• Indicative of indirect effects – higher firm dynamics increase
competition & efficiency
The headquarter bias: differences in national
employment shares (2014, TL2) Illustration with capital-city regions
• Enterprise-level data causes a 7 percentage point upward bias in
employment statistics of capital regions (~1.4 p.p. on average)
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−𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝑖𝑛 𝐸𝑠𝑡𝑎𝑏𝑙𝑖𝑠ℎ𝑚𝑒𝑛𝑡𝑠𝑖𝑐𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝑖𝑛 𝐸𝑠𝑡𝑎𝑏𝑙𝑖𝑠ℎ𝑚𝑒𝑛𝑡𝑠𝑐
Which regions are more dynamic in terms
of business creation/destruction?
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• Regional drivers of firms’ dynamics:
What institutional/social factors are driving business
creation/death/survival ?
• Regional business structure: dominance of a few large firms
• Institutions (corruption, business regulation)
• Credit constraints / funds
• Human capital and R&D (innovation)
Dominance of large firms and birth rates -TL3 Different development models in urban and rural regions
• Entrepreneurship in urban and rural regions is differently linked to the
local business environment and cluster formation
• In urban areas, clusters dominated by a few champions thrive the most
• Average birth rates between 2008 and 2015. 165 TL2 Regions of 15
countries.
• Quality of local governance is positively correlated with firm
creations
Local governance and firm birth rates Gallup World Poll Indicators (average 2008-2015)
• Large heterogeneity in business demography across regions – Discrepancies between urban and rural regions
– Differences along the lines of regional productivity
• (At least partially) explicable by regional characteristics: – Local governance, credit constraints, education and innovation,
concentration of firms
• Monitoring regional employment creation by new firms requires precise geographic information – Best available data show that the contribution of new enterprises is
large and very heterogeneous across regions
– Headquarter bias can lead to deviations from actual employment creation
Conclusions
Statistical agenda: - Further harmonise the production of regional business
demography indicators, building on the enterprise approach and possibly distinguishing employer firms and at the sufficiently detailed geographical level (TL3)
- Submit an update for the OECD-Eurostat Entrepreneurship Indicator Programme for the measurement of regional business demography indicators
Analytical agenda: - Using large scale firm level data set (i.e. ORBIS) to estimate the role of local characteristics associated with the success of firms - Further focus on the performance of SMEs and their role for regional development
Further steps
THANK YOU Contact: [email protected] [email protected]