Business cycle, industrial composition, or regional advantage? A decomposition analysis of new firm formation in the United States.

This paper presents a shift-share decomposition analysis of new firm formation at the three-digit NAICS level in the United States from 1998 to 2003, attributing overall new firm creation, in construction, manufacturing, and service sectors respectively, to three distinct sources, i.e., business cycle, industrial composition, and regional advantage. This research is critical not only because, from a methodological perspective, this is one of the first applications of the shift-share analysis in firm formation and entrepreneurship studies. This research is also significant because it empirically identifies the portion of new start-ups that results exclusively from regional factors, enables researchers and policy makers to uncover the nuanced relations between firm births and regional characteristics, job creation, and economic development, and therefore facilitates effective public policies to promote new businesses and achieve economic success. [ABSTRACT FROM AUTHOR]