What makes a region entrepreneurial? Evidence from Britain

There is a great deal of variation in the levels of entrepreneurship, or rates of self-employment, across the regions of Britain. Over the period 1983-1995, average self-employment in the North, Scotland, and the West Midlands was respectively 25%, 15%, and 15% lower than the national average, whereas in the South West, East Anglia, and Wales it was respectively 28%, 23%, and 21% higher. We develop a theoretical model of regional self-employment, and estimate the roles of labour market conditions, labour force characteristics, industry composition, and region-specific factors such as entrepreneurial human capital. Our results suggest that all of these factors are important, and that regional heterogeneity and regionally correlated disturbances must be accounted for when estimating regional self-employment relationships.