Long-term effects of regional shocks on new opportunity and necessity entrepreneurship

Abstract

The dynamics of start-up activity are crucial for regional development. Does regional firm formation exhibit hysteresis, such that shocks, including temporary policy interventions, have permanent effects? We distinguish between entrepreneurs pulled by opportunity and those pushed by necessity. Based on 84 waves of the Spanish Labor Force Survey, we create time-series of new opportunity and new necessity entrepreneurship for the 17 Spanish regions. We find that hysteresis is more widespread in new opportunity than in new necessity entrepreneurship, and that a highly educated regional workforce predicts hysteresis in new opportunity entrepreneurship. Implications for regional entrepreneurship policy design are discussed.