Working Paper: CEPR ID: DP864
Authors: David B. Audretsch; Marco Vivarelli
Abstract: This paper applies a modified version of the `income choice' model to explain variations in new-firm formation across Italian provinces over the period 1985-8. Based on a panel data of start-up activity in 78 Italian provinces and using two different databases, we find support for the overall theory of income choice where individuals choose between earning wages from an incumbent enterprise or else profits from starting a new firm. In particular, the evidence suggests that labour market conditions such as wages and the relative impact of labour dislocation, profits and environmental factors such as the degree to which entrepreneurial networks already exist, shape the degree to which new firms are started.
Keywords: new firms; entry; self-employment; income choice; regional development
JEL Codes: L10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| levels of profitability (n) (L25) | likelihood of new firm startups (prs) (L26) |
| higher wages (w) (J31) | likelihood of new firm startups (prs) (L26) |
| employment dislocation (jl) (J63) | likelihood of new firm startups (prs) (L26) |
| presence of small firms (s) (L25) | likelihood of new firm startups (prs) (L26) |
| R&D activity (rd) (O32) | likelihood of new firm startups (prs) (L26) |
| agglomeration effects related to capital cities (a) (R11) | likelihood of new firm startups (prs) (L26) |