Agglomeration factors and the geography of growing early-stage businesses in Chile

Abstract

New models of agglomeration cast the urban productivity premium as the outcome of agglomeration economies, a spatial sorting of skilled entrepreneurs and greater selection effects leading to less, but more productive businesses. We provide descriptive evidence of the spatial distribution of growing early-stage businesses in Chile that concurs with the theory. We show, first, that while business entry rates increase systematically with the size of a region, the rates of growing early-stage businesses are not related to the levels of agglomeration. Second, we show that, on the contrary, average early-stage business productivity, the levels of human capital and business exit rates all relate positively with agglomeration. Third, we estimate regression models that verify the expected relationships between agglomeration factors and regional growing early-stage-business activity. The results for Chile suggest that the disadvantages of agglomeration largely offset the benefits, and therefore there is no obvious location penalty to venturing in peripheral areas. Entrepreneurship policies in less-developed countries should not target excessively to specific industries and regions, as they might curtail an entrepreneurial potential that is ubiquitous.