Firm formation and regional spillovers: evidence from Germany

This paper studies the effect of regional spillovers on the rate of firm formation in two major West German industries for the time period from 1989 to 1993. I exploit regional variations in firm formation at the county level to identify the effects of historically given industry structure and employment structure on the emergence of new firms. The results are consistent with the existence of localization and urbanization effects. The emergence of high technology firms seems to be contingent on a heterogeneous historical industry structure, the existence of service providers and in particular on a high share of scientists in universities and extra-university research laboratories.