Entrepreneurship & Space: the effect of the degree of agglomeration and the innovation climate on the number of business start-ups in municipalities in the Netherlands

This thesis studies the effects of both the degree of agglomeration and the innovation climate on entrepreneurship in the Netherlands on municipal level. Based on a theoretical framework, hypotheses regarding the influence of both determinants on entrepreneurship are derived. A dataset has been constructed containing municipal-level data from 2006. First, the degree of agglomeration per municipality has been determined. This is done by using the model of municipal connectedness, which measures the interdependency between municipalities based on in and out-commuting employees. The model, created by Van Oort (2002), is updated in this thesis using data from 2006. Based on the connectedness, the degree of agglomeration is determined for each municipality. Furthermore, by using several various indicators, the innovation climate per municipality is measured. Finally, as a proxy for entrepreneurship, the number of business start-ups per municipality is used. Using a multiple regression model, the effects of both agglomeration and innovation climate on business start-ups are researched. Furthermore, by including variables for demand and supply factors for entrepreneurship, differences between municipalities with respect to these factors are controlled for. Overall, the results show that the degree of agglomeration in the Netherlands has positive effects on the number of start-ups in a municipality. However, differences with respect to these effects differ between regions in the Netherlands. In the Randstad, agglomeration economies are less relevant compared to the rest of the Netherlands. In this area, characterized by relatively high population density and concentration of urban agglomerations, it is of less importance for entrepreneurs to be located within an agglomeration to benefit from its agglomeration externalities. In the intermediate zone and the periphery, location does appear to be of importance. With respect to the effect of the innovation climate on entrepreneurship, only the presence of micro firms shows a consistent, significant and positive influence on entrepreneurship. As such, there is insufficient evidence to conclude that the innovation climate as a whole has effects on entrepreneurship.