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BOK Working Paper No.2018-35, The Impact of New Firm Formation on Regional Employment Change by Industry over Time and Space

Economic Research Institute (82-2-759-5366) 2018.11.11 2866

Title : The Impact of New Firm Formation on Regional Employment Change by Industry over Time and Space

Author : Sungchul Cho(Korea Research Institute for Human Settlements, KRIHS), Ki-Ho Kim(BOK)


<Abstract>


While it is widely assumed that a high level of new firm formation in a region contributes to employment growth, the empirical evidence concerning the long-term impacts that become effective only after a substantially long time lag is still elusive.

Drawing from a panel dataset that covers 234 administrative districts (Si-Gun-Gu) over the 2004-2016 period, we investigate the long-term employment effects of new firm formation. The relationship between regional employment change and start-up rate is analyzed using Almon polynomial distributed lags model with fixed effects.

Our findings show that the effects of new firm formation on employment growth persists over a long time-period of up to eleven years. We found the magnitude of the overall effects varies substantially between industrial sectors. The entry of manufacturing firms has stronger positive employment effects compared to that of service firms. It is also found that the entry of startups in knowledge intensive as well as in innovative industries– such as high-tech manufacturing or professional business service – has a relatively stronger employment effect. On the other hand, the impacts of new firm formation in social or personal service industries were found to be negative.

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