SSE/EFI Working Paper Series in Business Administration,
Stockholm School of Economics

Abstract: This paper investigates the long-term survival and performance of new entrepreneurial firms, comparing firms located within regional clusters with those located outside of clusters.We use matched employee-employer databases to investigate all Swedish firms started in the telecom and consumer electronic s, financial services, information technology, medical equipment, and pharmaceuticals and biotech sectors (N = 4,397). We follow these firms from 1993 to 2002 and measure their contribution to local economic vitality in term of job creation, payment of taxes, and payment of salaries to employees.

Controlling for factors such as firm size, age, and absorptive innovative capabilities, we find strong empirical evidence that being located within a cluster has positive effects on the survival of new firms. We also find that clustered firm creates more jobs, higher tax payments, and higher wages to employees. The effects are consistent across alternative measures of agglomeration and different regional levels.

Thid study contributes to the literatures on entrepreneurship and economic geography. By measuring the economic contributions of clustered and non-clustered firms, the empirical evidence also provides support for basing economic policies on clusters.

Keywords: Clusters; Entrepreneurship; Economic Development

21 pages, June 7, 2007

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