How new entrepreneurs contribute to transformation of regional economy under diverging regional settings

Entrepreneurial skills and regional development. How new entrepreneurs contribute to transformation of regional economy under diverging regional settings. Marcin Rataj, PhD Student Dept. of Geography and Economic History, Umeå University Beginning of PhD: September 2015, planned end: September 2019 marcin.rataj@umu.se The recent research on regional growth emphasizes that regional development to a large extent is characterized by “branching processes” where new industries spur from related existing activities (Frenken and Boschma; 2007; Boschma and Frenken 2011). Nevertheless, the branching process is not the only mechanism responsible for transformation of a regional industrial structure. For example, Neffke et al. (2014) indicate that a fundamental driver of regional change can be a transfer of activities by external firms and entrepreneurs. The most recent evidence emphasize that non-local actors (firms as well as entrepreneurs) induce significantly more structural change into the regional economy as they introduce activities present in their home regions into industrial structure of the hosting economy (Neffke et al., 2014). In the context of entrepreneurial activity, the role of migrant entrepreneurs (i.e. individuals who were economically active in the other region prior to starting the company) is of particular importance as regional entrepreneurship en masse is strongly embedded in local conditions (Stam 2010). Despite having potentially profound impact on regional economy migrant entrepreneurs might be in disadvantaged position compared to the local one. This is because they might lack access to local networks, information or locally recognizable credibility. Furthermore, the routines they transfer from their home region might not be equally functional in the new region. Nevertheless, having non-local routines might still provide an important advantage over local entrepreneurs if a new business is introducing a novel activity in the new region. To verify this theoretical hypothesis we analyze the performance of new entrepreneurs in terms of survival rate. We use longitudinal micro-database created by merging several administrative registers at Statistics Sweden. It contains matched information on the individuals and their resources of human capital (e.g., education, industryand firm-specific working experience) and characteristics of all enterprises (such as entry, exit, sector, location, productivity). Our preliminary results confirm our main hypothesis about an advantage of migrant entrepreneurs in activities that are unrelated to the economic structure of the new region. Also in line with theoretical predictions, our results indicate that the local entrepreneurs benefit more compared to migrant entrepreneurs from co-locating with related firms. Interestingly our results reveal that co-location with plants of same industry has less detrimental effects for migrant entrepreneurs compared to local firm. Such dual type of advantage in the most specialized and the most unrelated sectors of regional economies might be explained by selective type of entrepreneurial migration. It might be beneficial to move to another region and establish there a new company for two distinct kinds of nascent entrepreneurs. The first group are individuals who have skills and routines, which are highly desired locally (the case of specialized industries). The second group are those who have skills and routines in principle unknown in local economy (the case of unrelated industries). Our results are robust when introducing other measures of the entrepreneurial performance such as profitability and salary level per employee. Interestingly the magnitude of the benefits of entrepreneurial migration depend on direction of the migration, i.e. benefits from moving downwards in the regional hierarchy is higher than moving upwards, but both directions of migration yield the same type of advantages. Finally, according to our results the best performing entrepreneurs are those who return to the region where they were born after having gained experience in another region. In such case, the migrating entrepreneur might benefit from having skills and routines, which are novel for local economy and simultaneously has advantages stemming from local networks, information flow and credibility. References: Frenken K, Boschma R A, 2007, “A theoretical framework for evolutionary economic geography: industrial dynamics and urban growth as a branching process” Journal of Economic Geography 7(5) 635–649 Boschma R, Frenken K, 2011, “The emerging empirics of evolutionary economic geography” Journal of Economic Geography 11(2) 295–307 Neffke F, Hartog M, Boschma R, Henning M, others, 2014, “Agents of structural change. The role of firms and entrepreneurs in regional diversification”, Utrecht University, Section of Economic Geography, https://ideas.repec. org/p/egu/wpaper/1410.html Stam E, 2010 Entrepreneurship, evolution and geography. Boschma, RA & Martin, RL (eds.) The Handbook of Evolutionary Economic Geography, 139–161 (Cheltenham: Edward Elgar) Jelcodes: O18,R11 1 Entrepreneurship and regional path dependence.