Does local technological specialisation, diversity and dynamic competition enhance firm creation?

Abstract

Does the presence of specialist technological expertise, diversity across industries and the intensity of competition among existing firms in a location affect the rate at which new firms are attracted to an agglomeration? We construct three measures of these explanators including a novel measure of competitive dynamics and estimate a region-industry panel fixed-effects model using data on a national census of firms over a 15-year period. This extensive panel dataset of firms and regions, enables us to move beyond the comparative static analysis which has dominated the agglomeration literature for so long. We find local competitive intensity has a large positive effect on firm creation. Competition attracts, not repels. Technological specialisation is a moderate attractee, but diversity may merely lead to local congestion.