Firm formation in rural and urban regions explained by demographical structure

Abstract

In this paper we focus on the question of how population demography influences firm formation. In particular, we focus on this question with respect to the presence of differences between urban and rural areas, and if the demographical structure is a significant factor that can explain regional variation in firm formation? In the empirical analysis we perform a cross-sectional analysis where we use data on municipalities in Sweden. Furthermore, we make a distinction between the two types of regions in the Swedish economy (rural and urban) in order to analyze how these areas differs from each other with respect to our specific question of how population demography influences firm formation in rural and urban areas. By the use of spatial regression models the results show that households in the age where we can assume they have small children have a negative effect on the propensity of firm formation, households that are in the retirement age have a positive effect on the propensity of firm formation. We also find that rurality have a positive effect on firm formation. Our results correspond to other studies in the area with respect to a positive correlation between firm formation and age.