New Firms, Small Firms and Dead Firms: Spatial Patterns and Determinants in the United Kingdom

Abstract

Examines the geographic distribution of new firms, of closing firms, and of changes in the number of small firms, at the county level in the UK for 1980-1990. VAT business registration data showed that the total number of firms and the number of new businesses starting each year increased substantially. The growth, however, was not evenly distributed across business sectors or regionally. Drawing from prior research, this study identifies and tests a number of possible factors affecting spatial variation. Among these determinants are population growth, household wealth, and market demand. Analysis shows that local factors affect both new firm formation and small business survival. The most important determinants of new business startups are previous population growth, a strong percentage of people in managerial and professional careers, urban concentration and household wealth. Firm structure variables are associated with the types of new firms – business services start up where large firms are located, and manufacturing firms are located near small businesses. Local government spending overall and the presence of business assistance programs reduce the rate of firm closures. Government actions appear to have a minor impact on startup rates, but public policies can help small firms to survive.

Keywords: Population growth, Firm structures, Industry sectors, Geographic distribution, Firm survival, Regional resources, Startups, Regional policies, Firm growth, Closing firms, Firm turnover, Business assistance programs, Urban areas, Entrepreneurial environment, Local government, Firm size, Firm births