SOAS Research Online

Abstract

This paper investigates the temporal and spatial dynamics of business start-up activities and their determinants. It integrates three perspectives in explaining regional variations of start-ups: (i) spatial heterogeneity that characterizes regional differences in promoting or conditioning start-up activities, (ii) temporal dependence that features a self-augmenting and self-reinforcing effect of start-up activities, and (iii) spatial dependence that portrays inter-regional interaction of start-up activities across proximate regions. A spatial dynamic panel modeling analysis of the determinants of new manufacturing ventures created in sub-national regions of South Korea confirms that, in addition to the importance of regional characteristics, both temporal and spatial dependences of start-up activities are simultaneously in force and play statistically significant roles. To address the joint endogeneity issue of temporal and spatial dependences, we employ the system GMM estimator, which leads to much improved explanation of inter-regional variations in firm creation activities.