The Geography of Entrepreneurship in the New York Metropolitan Area

By Rosenthal, Stuart S.; Strange, William C. | Federal Reserve Bank of New York Economic Policy Review, December 2005 | Go to article overview

The Geography of Entrepreneurship in the New York Metropolitan Area


Rosenthal, Stuart S., Strange, William C., Federal Reserve Bank of New York Economic Policy Review


1. INTRODUCTION

New York will be a great place when they finish it. - Popular saying

New York City is often used as a paradigm for all that is urban. For instance, the analysis of New York in Jacobs ( 1969) is explicitly presented as bearing on fundamental aspects of urbanization in general, not just on New York. This approach is easy to understand. Cities are defined by their scale and density, and among the cities in the United States, New York has the most: the most employment, the most population, the most density. Almost any urban phenomenon that one might want to study is present in New York, and New York's size means that the phenomenon in question is magnified and thus easier to understand. This magnification makes the study of New York an essential part of the study of cities in general, and it is why the particular discussions of New York in Hoover and Vernon (1959), Vernon (1960), and Chinitz (1961) have had such long-lasting general impact on urban economics.

This paper also looks at New York as an urban paradigm. Our focus is on New York's constant change, as captured in the famous unattributed quote above. The central aspect of New York's dynamism that we consider is entrepreneurship. Specifically, we focus on the geography of entrepreneurship, examining how the levels and character of nearby economic activity influence the births of new establishments and the scale at which they operate.

This paper builds primarily on research on agglomeration economies. Much of the empirical work on agglomeration has sought to estimate the effect on productivity of an establishment's local environment. The estimation has sometimes involved direct estimates of productivity (Henderson 2003) and has sometimes involved estimating correlates of productivity, including wages (Glaeser and Mare 2001) and growth (Henderson, Kuncoro, and Turner 1995).' Our paper is concerned with two productivity correlates: establishment births and new-establishment employment. Prior work on agglomeration and births has established the importance of the metropolitan environment (Carlton 1983). Rosenthal and Strange (2003) show that agglomeration effects attenuate geographically for six standard industrial classification (SIC) industries-software (SIC 7371-73, 75), food products (SIC 20), apparel (SIC 23), printing and publishing (SIC 27), fabricated metal (SIC 34), and machinery (SIC 35)-that serve national and international markets. For these industries, it appears that an establishment's local environment matters most.2

This paper employs geographically refined data from Dun & Bradstreet together with geographic information systems (GIS) software to study the spatial pattern of entrepreneurship in New York City for a broad set of industry groups. The key aspects of our analysis involve regressions of the number of births and the amount of new-establishment employment in a census tract on variables that describe the tract's local environment. Two sets of such variables are constructed. The first characterizes the total employment across all industries within one mile, between one and five miles, and between five and ten miles of the tract. These measure the degree of urbanization of the tract, which Jacobs (1969) and others argue is associated with productivity. The second set of variables characterizes the employment in individual two-digit SIC industries. These allow the identification of localization effects, where the proximity to own-industry activity adds to productivity (Marshall 1920).

We take a within-city approach to agglomeration, with the identification of the determinants of the spatial pattern of births and new-establishment employment coming from variation in the data within the New York consolidated metropolitan statistical area (CMSA). Although such an approach is rare in the literature-Anderson, Quigley, and Wilhelmson (2004) and Arzaghi and Henderson (2005) are exceptions-theoretical work on agglomeration argues forcefully that the effect should be modeled as decaying with distance rather than being bounded by political borders. …

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