Entrepreneurship, Industrial Location and Economic Growth

Journal of Small Business and Enterprise Development

ISSN: 1462-6004

Publication date: 8 August 2008



Matlay, H. (2008), "Entrepreneurship, Industrial Location and Economic Growth", Journal of Small Business and Enterprise Development, Vol. 15 No. 3. https://doi.org/10.1108/jsbed.2008.27115cae.003



Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited

Entrepreneurship, Industrial Location and Economic Growth

Article Type: Bookshelf From: Journal of Small Business and Enterprise Development, Volume 15, Issue 3

Edited by Josep Maria Arauzo-Carod and Miguel Carlos Manjon-Antolin,Edward Elgar Publishing,viii +380 pp.,ISBN: 978 1 84720 386 1,

Keywords: Economic growth, SMEs, Agglomeration, Process innovation, Entrepreneurship

This specialist research compendium incorporates a list of contributors, an introduction and a further 17 chapters divided into six parts. All the papers included in this edited volume were presented at the “Firm demography and industrial location” workshop held in November 2005 at the Rovira i Virgili University, in Spain.

In the introductory chapter, the Editors, Josep Maria Arauzo-Carod and Miguel Carlos Manjon-Antolin, outline the aim and scope of their book. It emerges that they set out to bring together a number of chapters that examine the interrelation between “entrepreneurship”, “industrial location” and “economic growth” – specifically because these topics are typically studied independently, across various disciplines and perspectives. Previous research has shown that entrepreneurial activity tends to be geographically concentrated and the location of a new venture continues to represent an important aspect of an entrepreneur’s decision making process, one that can often make the difference between success and failure. This is particularly useful to know within the context of the growing rhetoric surrounding the rise of e-Commerce and the phenomenal growth in Internet trading. The chapters included in this volume represent an improvement on the “static” approach, achieved through a dynamic analysis of why some entrants to an economy survive and grow while others decline and fail. Even after more than a half a century of research attention this aspect of entrepreneurship is still pertinent and yet to be resolved empirically.

The focus of the two chapters included in Part I is on the economic impact of entrepreneurship. In chapter two, Michael Peneder offers an innovative industrial classification which is based on both the opportunity and the cost of experimentation at the start-up stage. According to the author, there exists a dichotomy between “entrepreneurial” and “routinised” approaches, involving critical differences value added, employment, innovation and profit margins. In the next chapter, Josep Maria Arauzo-Carod, Daniel Liviano-Solis and Monica Martin-Bofarull provide empirical evidence on the impact of new firms on employment growth. It emerges that the effects of firm entry and new business formation on employment levels is stronger in the short term.

The three contributions that make up Part II of the volume relate to the effects of industry dynamics. In chapter four, Wojciech Rogowski and Jacek Socha focus on the demography of enterprises in Poland. It appears that firm entry rates in the Polish manufacturing sector have shown a downward trend since the early 1990s. It would be interesting to know what happened to the service sector, as contextualised within the whole economy and spread over the same time period. In the next chapter Jaan Masso, Raul Eamets and Kaia Philips investigate firm demographics in Estonia from the perspective of creative destruction during transition. Their findings show an upward trend in terms of firm turnover. In the context of firm entry and exist rates, these exhibit remarkably high levels, representing an overall positive impact on Estonian productivity as well as economic growth. The third chapter concentrates on sunk costs, industry dynamics and firm productivity in Spanish manufacturing firms. Jose Carlos Farinas, Ana Martin-Marcos and Sonia Ruano found that the productivity distribution of Spanish manufacturing firms operating in markets that exhibit low sunk entry costs are significantly higher than similar businesses operating in markets that typically involve high sunk entry costs.

The focus of the four chapters included in Part III is on the growth and survival of firms. In chapter seven Francesca Lotti, Enrico Santarelli and Marco Vivarelli outline the main results of an empirical study undertaken during the 1987 to 1994 period within the Italian radio, TV and telecommunication equipment industry. The authors found that in this sector, learning models of industry dynamics can amount to a violation of Gibrat’s Law in the short-run but, interestingly, its validation in the long-run. In contrast with previous authors who focused on manufacturing firms, Mercedes Teruel-Carrizosa and Agusti Segarra-Blasco study service firms between 1996 and 2000, specifically the impact of growth, age and location on Spanish hotels. The authors reject Gibrat’s Law in relation to their sample of service firms and establish a U-shaped relationship between age and the growth tendencies of Spanish hotels. Furthermore, those hotels that are located near the coast tend to exhibit higher growth rates then their counterparts in mainland Spain. Paloma Lopez-Garcia and Sergio Puente-Diaz offer a cross sector comparison of the survival determinants of Spanish firms. Some interesting cross sectoral results are disseminated in this chapter:

  • bigger start-ups result in better than average survival probabilities;

  • the impact of size on survival is more pronounced in the service sector than in manufacturing; and

  • the survival rates of manufacturing firms are more dependent on the size of their short term debt.

The chapter by Raquel Ortega-Argiles and Rosina Moreno also focuses on firm survival, but from the perspective of product and process innovation. It emerges that new products and product innovation can increase the likelihood of small manufacturing firms’ survival but not in the case of larger organisations. Irrespective of size, organisational change and/or the introduction of new machinery tend to reduce the risk of firm failure.

Part IV is dedicated to specific issues relating to firm location and there are three interesting chapters included in it. In chapter eleven, Saioa Arando, Mikel Navarro and Inaki Pena look at cross-border business networks in general and the case of the Basque Eurocity corridor in particular. This topic is both very interesting and important to the contemporary collaborative type of entrepreneurship. The authors collected data from Basque firms operating on both sides of the Spanish-French border region. They found that cross border alliances helped entrepreneurs gather valuable international knowledge and experience that helped their decision making process relating to larger and riskier foreign investment projects. In the following chapter Rob Winters and Erik Stam consider innovation and networks amongst high-technology SMEs. It appears that smaller firms can successfully mitigate size disadvantages by benefiting from supplier and customer networks and resulting product and process innovations. The topic of the chapter authored by Angel Alanon-Pardo, Josep Maria Arauzo-Carod and Rafael Myro-Sanches links firm accessibility, agglomeration and location. Typically, improvements in accessibility and the extent of agglomeration economics appear to positively affect firm location decision making processes.

Part V also contains three chapters and focuses on firm location and globalisation patterns. In chapter fourteen, Corinne Autant-Bernard looks at individual and regional determinants of research and development activities in France. She found that R & D lab locations are dependent on firm characteristics and are influenced by knowledge spillovers from private research. In the next chapter, Ilaria Mariotti and Lucia Piscitello investigate the impact of outward FDI on local employment and related skill upgrading in Italy. It emerges that in firms positioned in industrial districts internationalisation processes have a positive effect on employment growth and also on skill upgrading. In chapter sixteen Silviano Esteve-Perez, Juan A. Manez-Castillejo, Maria E. Rochina-Barrachina and Juan A. Sanchis-Llopis evaluate the survival of manufacturing firms engaged in exporting activities. Some very interesting results emerge from this study on the factors affecting the longevity of exporting firms.

The two chapters that form the final part (VI) of this compendium involve firm agglomeration and growth. In chapter seventeen Philip McCann and Jaakko Simonen investigate innovation, cooperation and labour mobility in Finnish firms. The main results of their study show that face-to-face contacts are essential to innovation in Finnish firms. In the final chapter in this book, Jordi Jofre-Monseny presents readers with a structural model of economies and firm survival based on a panel of Catalan firms that commenced trading between 1993 and 1995. Although they found no strong evidence linking agglomeration economies to firm survival, the author contends that efficient firms have a better chance to remain in business.

There are a number of reasons why I would recommend this book to those interested in entrepreneurship location and growth. First, the evidence presented in this volume is empirically rigorous and the presentation of results is both fluent and fluid. Second, the European flavour of the component chapters provide cross border results that are complementary to the mostly North American volume of published knowledge on these interrelated topics. Finally, although strongly interlinked, these chapters evidence the richness and variety of European research on entrepreneurship in context and represent a good example of empirically rigorous work that provides applicable and practical solutions to real life business challenges.

Harry MatlayBirmingham City University, Birmingham, UK