Determinants of New Business Formation - Some Lessons from the Czech Republic

Abstract. This paper concerns with determinants of new business formation. The determinants are related to relevant theoretical concepts dealing with the issue. The Czech Republic in the time period 2011-2012 is the area of interest. Spatial approach is used to identify the impact of the determinants on new business formation. Thus, the data are related to 206 Czech microregions. The methods of regression analysis are employed to gain results. These show the positive impact of agglomeration economies and the quality of entrepreneurial climate on new business formation. Moreover, human capital and the presence of foreign-owned businesses positively influence new business formation. On the contrary, the relationship between unemployment and new business formation is ambivalent. Altogether, the findings support path-dependency of new business formation with important implications for entrepreneurship policy. Finally, regression results point out the relevance of spatial spillovers in explaining variation in new business formation.Keywords: Entrepreneurship, new business formation, OLS regression, spatial regression, the Czech RepublicJEL classification: R12, M13, R15(ProQuest: . denotes formula omitted.)IntroductionEntrepreneurship is firmly embedded in the theory and practice of economic growth and development. Lee, Florida and Acs (2004) regard new enterprises as one of the sources of employment and innovations. Wang (2006) points out the positive relationship between entrepreneurship, economic efficiency and technological progress. Delfmann, Koster, McCann and Van Dijk (2014) connect entrepreneurship with quality of life. Fotopoulos (2014) emphasizes the importance of entrepreneurship for regional equity and efficiency. Fritsch and Mueller (2007) note the importance of entrepreneurship for economic growth. Van Stel and Suddle (2008) note the positive relationship between entrepreneurship and employment growth. Bernat and Korpysa (2013), Sobekova, Solik and Sipko (2014) perceive entrepreneurship as strategy for solving unemployment problems of young people. Altogether, demand for knowledge about the determinants of new business formation arises.There is a vast literature dedicated to the determinants of new business formation now. Generally, two strands of research may be distinguished (see, e.g., Lee, Florida and Acs, 2004; Andersson and Koster, 2011). The first strand is focused directly on decision-making process of new entrepreneurs. Thus, the determinants of new business formation are identified from these processes (see, e.g., Belas, Bilan, Demjan and Sipko, 2015). The second strand deals with the determinants of new business formation in the spatial perspective. The essence of this approach rests on spatial variation in new business formation rates. Subsequently, the determinants of this variation are searched (see, e.g., Armington and Acs, 2002). However, despite the vast literature, the findings on the impact of particular determinants on new business formation are ambivalent. This fact substantiates comparative research on the issue because important insights are provided for policy decisions (see, e.g., Sutaria and Hicks, 2004). The main purpose of this paper is to extend the knowledge on the determinants of new business formation. The spatial approach is followed in the paper. The analyzed determinants were chosen in accord with recent development of theory. Thus, the determinants related to the theoretical concepts of agglomeration economies, entrepreneurial choice, entrepreneurial climate and evolutionary economic geography were included into the analysis. The goal of the paper is then to identify the impact of these determinants on new business formation, with the Czech Republic and new business formation in the years 2011 and 2012 as the case study. The paper is structured as follows. The first part introduces theoretical background of the paper. The second part presents empirical methodology and data. …