Regional disparities in entrepreneurial behaviour and activities in the United Kingdom and their impact on regional employment growth rates between 2004 and 2009

Trstenjak, Janja, Abubakar, Yazid Abdullahi and Mitra, Jay (2012) Regional disparities in entrepreneurial behaviour and activities in the United Kingdom and their impact on regional employment growth rates between 2004 and 2009. In: 35th Institute for Small Business and Entrepreneurship (ISBE) Annual Conference: Creating Opportunities through Innovation: Local Energy, Global Vision; 7-8 Nov 2012, Dublin, Ireland. ISBN 9781900862240


Objective: Our objective is to explore and demonstrate the critical link between innovation and employment for firms before and during the recession. We investigate different types of innovation and their associated impact on regional employment growth rates in the UK using panel data of regions during the period 2004-2009. Prior Work: Recent research at the regional level, suggests a clear positive impact of new firm formation on employment growth rates (Reynolds, 1994, 1999; Acs and Armington, 2004) and self-employment rates (Foelster, 2000; Brixy and Grotz, 2004). Our research extends the scope of such work on two fronts. We first examine the innovative dimensions of entrepreneurial activities (i.e. product innovation, process innovation, organisational innovation and geographic extent of innovation collaborations) in firms and their association with high employment growth rates at the regional level. Second, we compare the differential impact of various types of innovation on employment before and during the current economic recession. Approach: We use three sources of data. We use the UK Community Innovation Survey (CIS) for the six year period 2004 to 2009 with the sample used in this study being stratified by UK regions (9 Government Office Regions in England). Our second source of data is NOMIS, from which we derive employment creation and VAT registration data. The employment rate data for UK regions was taken from the official Eurostat database. Following the methodology developed by Acs and Armington (2004), the regional growth differences are analysed by taking into account the employment in the specific region and this analysis employs two different measures of employment the employment rate and employment compound annual growth rate. Entrepreneurial activity is proxied by two measures, total employees and VAT registrations as the official guide to the pattern of business start-ups in the UK. To account for high growth potential of specific regions, the effect of human capital is included in the form of the number of residents with NVQ level 4 or above in total population. We distinguish our model by including different types of firm innovation as explanatory factors. Results: We find that there are wide variations across regions for different types of innovation. Our results show that product innovation was the dominant innovation strategy both prior and during the economic crisis, while significantly fewer firms invested in process and wider (management) innovations Implications: Our findings have critical implications for policy especially in inclement economic conditions. The importance of product innovation suggests that firms are keen to distinguish their goods and services rather than rely solely on incremental forms of innovation. The downturn acts as an impetus for change. Innovation policy can be effective if it takes into account demand side behaviour and practice. For firms, good practice in a recessionary climate centred round product innovation can yield better prospects for the up turn when that occurs Value: Our work adds value to the existing literature on entrepreneurship development at the regional level through its specific focus on innovation. It enhances existing methodological devices to measure the impact of innovation on employment by introducing new variables. Finally, the findings should assist policy makers in determining effective regional policy for both employment and innovation.

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