Entrepreneurship and economic development in cities

Policymakers have identified the relationship between entrepreneurship and economic development. Yet little is known about how this relationship varies over time in cities with different market size. This study examines the link between new firm start-ups and economic development using a panel of 127 European cities between 1994 and 2009. We found that the immediate economic development impact of new-firm start-ups is positive for both large and small and medium-size cities. The relationship is U-shaped for large cities, with the indirect effect taking 7 years. Indirect effect does not occur in small and medium cities supporting regional economy argument of agglomeration economies and a critical mass for growth. We offer useful information for policymakers, practitioners and scholars.