The Impact of Regional Age Structure on Entrepreneurship

Empirical studies based on individual data have found an inverse U-shaped relationship between age and the decision to start a business. Other studies have shown that becoming an entrepreneur is a regional event, with potential entrepreneurs benefiting from their local networks. This article links both strands of literature by introducing age-specific peer effects. Using changes in the age distribution of the population of western German regions over time, we found-in accordance with microlevel analyses-an inverse U-shaped relationship between the regional age structure and start-up activity in a region. Moreover, our findings suggest that the age-specific likelihood of becoming an entrepreneur changes with the size of the age cohort, pointing to the existence of age-specific peer effects. Copyright (c) 2009 Clark University.