The Role of Industry, Occupation, and Location-Specific Knowledge in the Survival of New Firms

39 Pages Posted: 1 Aug 2018

See all articles by Cristian Jara-Figueroa

Cristian Jara-Figueroa

Massachusetts Institute of Technology (MIT)

Bogang Jun

Massachusetts Institute of Technology (MIT) - MIT Media Laboratory

Edward L. Glaeser

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)

César Hidalgo

Massachusetts Institute of Technology (MIT)

Date Written: July 2018

Abstract

How do regions acquire the knowledge they need to diversify their economic activities? How does the migration of workers among firms and industries contribute to the diffusion of that knowledge? Here we measure the industry, occupation, and location specific knowledge carried by workers from one establishment to the next using a dataset summarizing the individual work history for an entire country. We study pioneer firms–firms operating in an industry that was not present in a region–because the success of pioneers is the basic unit of regional economic diversification. We find that the growth and survival of pioneers increase significantly when their first hires are workers with experience in a related industry, and with work experience in the same location, but not with past experience in a related occupation. We compare these results with new firms that are not pioneers and find that industry specific knowledge is significantly more important for pioneer than non-pioneer firms. To address endogeneity we use Bartik instruments, which leverage national fluctuations in the demand for an activity as shocks for local labor supply. The instrumental variable estimates support the finding that industry related knowledge is a predictor of the survival and growth of pioneer firms. These findings expand our understanding of the micro-mechanisms underlying regional economic diversification events.

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Suggested Citation

Jara-Figueroa, Cristian and Jun, Bogang and Glaeser, Edward L. and Hidalgo, César, The Role of Industry, Occupation, and Location-Specific Knowledge in the Survival of New Firms (July 2018). NBER Working Paper No. w24868. Available at SSRN: https://ssrn.com/abstract=3222415

Cristian Jara-Figueroa (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

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Bogang Jun

Massachusetts Institute of Technology (MIT) - MIT Media Laboratory ( email )

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Edward L. Glaeser

Harvard University - Department of Economics ( email )

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Brookings Institution

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National Bureau of Economic Research (NBER)

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César Hidalgo

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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