What Makes a City Entrepreneurial?
By Edward L. Glaeser (Harvard University) and William R. Kerr (Harvard Business School)
Why are some metropolitan areas so much more entrepreneurial than others? Silicon Valley seems almost magically entrepreneurial with a new startup on every street corner, but in declining Rust Belt cities such start-ups are far and few between.
High levels of entrepreneurship are closely correlated with regional
economic growth. Places with abundant new start-ups also
experience faster income and employment growth. Areas with
more small, independent firms far in the past have tended to do better.
Unsurprisingly, local policy makers who are looking for ways to rev the
economic engines of their cities are interested in policies that can generate more entrepreneurship. Therefore, understanding the determinants of entrepreneurship can help guide the development of more effective economic development policies, both locally and nationally.
Measuring Entrepreneurship
The first problem in assessing the causes of local entrepreneurship
is measurement. While the giants of economic history, like Joseph
Schumpeter and Frank Knight, wrote great books explaining the value of
entrepreneurship, they did not leave us with a clear, empirically usable
definition of it.
The best proxy that comes from the U.S. Census is being self-employed,
but entrepreneurship scholars often question the idea that every self-
employed person is an entrepreneur. Moreover, self-employment does
not capture the scale of an enterprise or its success, which means that
using self-employment to capture entrepreneurship produces some
anomalous results. For example, according to the Census, the West
Palm Beach metropolitan area has by far the highest self-employment
rate in the country while the San Jose metropolitan area, which includes
Silicon Valley, has one of the lowest. Unlike many entrepreneurship
scholars, we do think that the large numbers of moderate earning, self-
employed individuals in West Palm Beach, over the age of 55, should be
considered entrepreneurs, but any measure that qualifies San Jose as
non-entrepreneurial is clearly deeply flawed.
(To read the full Policy Brief click the link above)
