Scandinavian Working Papers in Economics

Papers in Innovation Studies,
Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy

No 2016/28: Survival of Entrepreneurial Firms: The Role of Agglomeration Externalities

Sam Tavassoli () and Viroj Jienwatcharamongkhol ()
Additional contact information
Sam Tavassoli: CIRCLE, Lund University, Postal: CIRCLE, Lund University, PO Box 117, SE-22100 Lund, Sweden
Viroj Jienwatcharamongkhol: Department of Economics, Lund University, Postal: Sweden

Abstract: This paper analyzes the role of various types of agglomeration externalities on the survival rate of entrepreneurial firms. In particular, we trace the population cohort of newly-established and self-employed Swedish firms in the Knowledge-Intensive Business Service (KIBS) sector in 1997 up to 2012 and investigate the role of Marshallian and Jacobian externalities on the survival of these firms. We find that only Jacobian externalities (diversity) is positively associated with the survival of entrepreneurial firms. Not all Jacobian externalities matter though. Only the higher the “related variety” of the region in which an entrepreneurial firm is founded, the higher will be the survival chance of the firm, while “unrelated variety” barely has any significant correlation. The result is robust after controlling for extensive firm characteristics and individual characteristics of the founders. The main message here is: for a newly-established entrepreneurial firm, not only it matters who you are, but also where you are.

Keywords: Entrepreneurial firms; region; agglomeration externalities; survival analysis; related variety; unrelated variety

JEL-codes: J24; L26; R12

33 pages, October 19, 2016

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