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The effect of clusters on the survival and performance of new firms

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Abstract

This paper contributes to the literatures on entrepreneurship and economic geography by investigating the effects of clusters on the survival and performance of new entrepreneurial firms where clusters are defined as regional agglomerations of related industries. We analyze firm-level data for all 4,397 Swedish firms started in the telecom and consumer electronics, financial services, information technology, medical equipment, and pharmaceuticals and pharmaceutical sectors from 1993 to 2002. We find that that firms located in strong clusters create more jobs, higher tax payments, and higher wages to employees. These effects are consistent for absolute agglomeration measures (firm or employee counts), but weaker for relative agglomeration measures (location quotients). The strengths of the effects are found to vary depending on which geographical aggregation level is chosen for the agglomeration measure.

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Notes

  1. Labor market areas are statistically defined regions used primarily to investigate regional flows of goods, workers, and production. Counties are administrative regions responsible for governmental issues such as taxation and health care. In comparison to federal nations like Germany or the US, Swedish counties have limited political independence. Counties combine to form NUTS-2 regions, which are statistical units used by the European Union to allow for the comparisons of regions of similar geography and population.

  2. In unreported models we also include the lagged dependent variables to account for the endogenous nature of organic growth. The presence of this variable, however, made estimates with firm fixed effects unstable, and we excluded the lagged dependent variable in the final model. We are grateful to an anonymous reviewer for pointing out this problem.

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Acknowledgements

We are grateful for critical comments from Michael Dahl, Olav Sorenson, Tim Folta, Johan Wiklund, Rene Belderbos, Örjan Sölvell, Ulli Meyer, Dirk Fornahl, and seminar participants and the 2007 Uddevalla Symposium. Financial support was provided by Handelsbanken Research Foundations, the Swedish Agency for Innovation Systems (Vinnova), the Swedish Foundation for Small Business Research (FSF), and the Swedish National Board for Industrial and Technological Development (NUTEK). The usual caveats apply.

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Appendix 1. Inter-related industrial clusters

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Wennberg, K., Lindqvist, G. The effect of clusters on the survival and performance of new firms. Small Bus Econ 34, 221–241 (2010). https://doi.org/10.1007/s11187-008-9123-0

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