The Effects of Clusters on the Survival and Performance of New Firms

This paper contributes to the literatures on entrepreneurship and economic geography by investigating the effects of clusters on the survival and performance of new entrepreneurial firms. Defining clusters as regional agglomerations of related industries, we analyse firm-level data from 1993 to 2002 for all 4,397 Swedish firms started in the telecom and consumer electronics, financial services, information technology, medical equipment, and pharmaceuticals and pharmaceutical sectors. We find that that firms located in strong clusters create more jobs, higher tax payments, and higher wages to employees. These effects are consistent for absolute agglomeration measures (firm or employee counts), but weaker for relative agglomeration measures (location quotients). The strengths of the effects are found to vary depending on which geographical aggregation level is chosen for the agglomeration measure