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What determines entrepreneurial clusters?

Author

Listed:
  • Luigi Guiso

    (European University Institute, EIEF and CEPR)

  • Fabiano Schivardi

    (University of Cagliari, EIEF and CEPR)

Abstract
We contrast two potential explanations of the substantial differences in entrepreneurial activity observed across geographical areas: entry costs and external effects. We extend the Lucas model of entrepreneurship to allow for heterogeneous entry costs and for externalities that shift the distribution of entrepreneurial talents. We show that these assumptions have opposite predictions on the relation between entrepreneurial activity and firm level TFP: with different entry costs, in areas with more entrepreneurs firms' average productivity should be lower; with heterogeneous external effects it should be positive. We test these implications on a sample of Italian firms and unambiguously reject the entry costs explanation in favor of the externalities one. We also investigate the sources of external effects, finding robust evidence that learning externalities are an important determinant of cross-sectional differences in entrepreneurial activity.

Suggested Citation

  • Luigi Guiso & Fabiano Schivardi, 2008. "What determines entrepreneurial clusters?," EIEF Working Papers Series 0806, Einaudi Institute for Economics and Finance (EIEF), revised May 2008.
    • Handle: RePEc:eie:wpaper:0806
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    References listed on IDEAS

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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