Proximity to Knowledge Sources and the Location of Knowledge Based Start-ups

We use detailed longitudinal data on firms, human capital and universities to study the impact of geographical proximity to knowledge sources and local absorptive capacity on the location of knowledge-based start-ups in the Portuguese regions. There are significant differences in new firm formation in knowledge based sectors among Portuguese regions. Using municipalities as the regional unit of analysis, we examine the influence of the regional distribution of universities, yearly numbers of students and graduates, and workforce education on start-up numbers. We estimate models of regional entry using zero inflated negative binomial regression. We find that local access to knowledge and human capital significantly influences entry by knowledge based firms into regions, after controlling for other regional-level variables. Results suggest that local opportunities available for new businesses in manufacturing are fewer, and that absorptive capacity associated with human capital may also be lower than in services. Indeed, for manufacturing start-ups the creation of local absorptive capacity (i.e. human capital) seems to matter more than actual knowledge generation by universities. While proximity to the largest urban centres plays a positive role in driving entry into high and medium tech manufacturing, its effect is the opposite on entry into knowledge based services