1Entrepreneurial activity across European cities

This paper investigates variation in entrepreneurial activity across European cities. More specifically, by utilizing city indicators for 31 European countries, based on European Urban Audit Surveys data, w e undertake a panel data study of how various demographic, socio-economic and geographical characteristics of European cities and institutional country-level settings affect entrepreneurship, as proxied by the rate of self-employment, in 377 European cities during the period of 1989-2006. While controlling for various spatial effects across cities w e f ind that the rate of self-employment is largely explained by city size, socio-economic characteristics, such as the level of education and city inhabitants ’ wellbeing, and size of the local government. We also find that institutional quality, including a property right system and democratic institutions, significantly affect entrepreneurship. Our findings fail to support a hypothesis of the importance of capital city incubators for entrepreneurial activity. Finally, w e f ind that city location, namely latitude and longitude, emerge as significant predictors of entrepreneurship. Surprisingly, our city location results suggest that cities in the south of Europe are more entrepreneurial than in the north. Overall, along with the positive effect of low er education and the insignificant effect of city typology associated w ith know ledge hub, these results may suggest that self-employment seems to capture rather low-value added entrepreneurship in the context of European cities. However, these effects vary significantly across European countries holding true more for East European cities as opposed to West European ones