Is a high start-up rate per se good for a business location? It depends — according to a study by the IfM Bonn. Based on data from the Federal Statistical Office between 2002 and 2011, the study examines the influence of start-up activity on regional economic growth.
The study authors conclude that more start-ups aren't always good for the respective location. The study states:
"[There] are also numerous regions where growth is below average despite a lively start-up activity. Likewise, there are districts that are doing very well economically despite low startup rates."
Interestingly, the propensity to start a business remains relatively stable over time. The authors conclude that this indicates a "start-up culture" that is passed down across generations in the various regions.
The country benefits more from start-ups than the city
In general, more start-ups are created in independent cities and urban districts than in rural areas. This creates intense competitive pressure in cities, resulting in a "revolving door" system: New businesses are less likely to survive in cities, and even if they succeed in the market, they often displace established companies. Despite the authors' rather negative view of start-up activity, they nevertheless note that new businesses can provide important impetus. However, the positive effect per individual start-up decreases with the number of start-ups. This is not surprising: In a structurally weak region, a single new business is more important than in a startup hotspot.
