Handbook of Research on Entrepreneurship and Regional Development
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Handbook of Research on Entrepreneurship and Regional Development

National and Regional Perspectives

Edited by Michael Fritsch

Recent research has found pronounced differences in the level of entrepreneurship and new business formation across various regions and nations. This timely Handbook reveals that the development of new ventures as well as their effects on overall economic growth are strongly shaped by their regional and national environment. The expert group of contributors gives an overview on the current state of the art in this field, and proposes avenues for further investigation. Topics include the regional determinants of new business formation, the effects of start-ups on growth, the role of globalization for regional entrepreneurship, the effect of national and regional framework conditions, as well as the role of universities as incubators of innovative new firms.
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Chapter 7: Firm Growth, Institutions, and Structural Transformation

Magnus Henrekson and Dan Johansson


Magnus Henrekson and Dan Johansson INTRODUCTION For a long time, large firms were considered to create new employment and economic growth, mainly due to economies of scale in production as well as in research and development (for example, Schumpeter, 1942; Galbraith, 1956, 1967). This conventional wisdom was challenged by Birch (1979) who in an empirical investigation claimed small firms to be the main job generators. Birch’s results and his conclusions have been questioned and sparked up a debate; see Kirchhoff and Greene (1998) for a review of the discussion. Van Praag and Versloot (2008) summarize the empirical evidence on job creation by small firms, and conclude (p. 135) that it is an unambiguous result that small firms create more jobs on net than large firms, even when the methodology suggested by the critics is applied. Subsequent research shows that a fairly small number of highgrowth firms (HGFs) – on average smaller and younger than other firms – contribute the bulk of net employment; see Henrekson and Johansson (2010) for a survey. This chapter has its starting point in a generally overlooked part of the critique that certain firms – be they small, young or rapidly growing – are of particular importance for job creation and economic growth. This critique asserts that growth has to be understood in a broader perspective entailing considerable churning and restructuring (for example, Haltiwanger and Krizan, 1999).1 In fact, rapid growth of some firms implies that they attract factors of production from other firms. Growth therefore requires contraction and...

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