Entrepreneurial activity across European cities

Abstract

The importance of entrepreneurship as a driving force in the economic development has been widely recognised. Respectively, a growing number of empirical studies have focused on explaining variation in entrepreneurial activity at various spatial levels with the majority of them taking either a cross-country perspective or looking at the inter-regional differences. Given limited city-level data availability, scarce work has been undertaken so far on cross-city entrepreneurship within the spatially oriented entrepreneurship research. Furthermore, to our best knowledge, no empirical studies exist on entrepreneurship across European cities and our paper aims to bridge this gap. The object of the paper is to analyse the variation in entrepreneurial activity across European cities. More specifically, by harmonizing the city level data in 31 European countries, based on European Urban Audit Survey (Eurostat) data, we undertake a panel data study of how various demographic, socio-economic, ethnic and geographical characteristics of European cities and institutional country-level settings affect entrepreneurship in 377 European cities during the period of 1989-2006. We use the rate of self-employment as a measure of entrepreneurship. While controlling for various spatial effects across cities we find that the rate of self-employment is largely explained by city size, socio-economic characteristics, such as the level of education and city inhabitants' wellbeing, city ethnicity and size of a local government. Institutional quality, including a property right system and democratic institutions, and city location affect entrepreneurship. Our findings fail to support a hypothesis of the importance of capital city incubators, Euroregions and EU enlargement for entrepreneurial activity. Surprisingly, our city location results suggest that cities in the south of Europe are more entrepreneurial than in the north. Along with a positive effect of a lower education and insignificant effect of a city typology associated with high-tech entrepreneurship. Keywords: Entrepreneurship, Agglomeration, Labour market, Western Europe, Eastern Europe, Urban JEL Codes: L26 R10 R30 O31

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