This paper examines the role of regional clusters in regional entrepreneurship, focusing on the distinct influences of convergence and agglomeration on growth in number of start-ups, as well as employment in such new firms in a given region-industry. While reversion to the mean and diminishing returns to entrepreneurship at the region-industry level can result in a convergence effect, the presence of complementary economic activity creates externalities that enhance incentives and reduce barriers for new business creation. Clusters are a particularly important way through which location-based complementarities become realized. The empirical analysis uses a novel panel dataset from the Longitudinal Business Database of the U.S. Census Bureau and the U.S. Cluster Mapping Project, which shows significant evidence of the positive impact of clusters on entrepreneurship. After controlling for convergence in start-up activity at the region-industry level, industries located in regions with strong clusters (i.e. a large presence of other related industries) experience higher growth in new business formation and start-up employment. Strong clusters are also associated with the formation of new establishments of existing firms, thus influencing the location decision of multi-establishment firms. Finally, strong clusters contribute to start-up firm survival.

Image: Nick Lowndes