Demand pull or supply push? Metro-level analysis of start-ups in the United States

Abstract

This paper examines factors related to higher regional start-up activity. Two hypotheses are formulated to explain start-ups: the demand-pull hypothesis argues that the amount, growth and density of aggregate demand will stimulate start-ups in any sectors; and the supply-push hypothesis argues that factors including high-tech industry concentrations, patent generation, industrial and university research activities, and government funding will stimulate high-tech start-ups. Both hypotheses support the importance of human capital factors, such as a highly educated or skilled workforce and thick labour markets. The paper incorporates these various measures and employs cross-sectional multivariate analysis of start-up rates in all sectors and in high-tech sectors in 366 metropolitan areas as defined by the US Census Bureau in 2009. Overall, very strong support is found for the demand-pull hypothesis, but only modest support for the supply-push hypothesis, which provide substantial caveats for public policy to promote start-up activities.