New Firms and Regional Employment Change

This article analyzes the relationship between regional start-up activities and employment change in subsequent years for the West German planning regions. I find that the number of start-ups in a particular region is determined to a high degree by the prevalent sectoral structure. To eliminate this influence sectorially adjusted new-firm formation rates are calculated. These rates reflect a clear core-to-periphery decline. The relationship between the level of regional start-up activities and employment change comes out to be rather weak. In contrast to the common wisdom the coefficients for the impact of the entry rate on regional employment indicates a negative contribution of regional start-up acitivities.