Social trust and new firm formation: a regional perspective
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Social trust and new firm formation: a regional perspective Carlo Corradini
Accepted: 14 September 2020 # The Author(s) 2020
Abstract This paper aims to contribute to the analysis of informal institutions on entrepreneurship. In particular, we follow a regional perspective to explore the role of social trust as a determinant of new firm formation, enhancing the flow of information and knowledge exchange across spatially embedded relational structures that underpin entrepreneurial processes. Also, we argue this bridging effect of social trust may be subdued in regions with higher levels of economic development characterised by stronger quality of governance and more defined entrepreneurial ecosystems. Combining data from Eurostat and the European Social Survey for over 200 regions across nine EU countries, the paper provides novel empirical evidence that social trust plays a significant role in fostering the formation of new firms. At the same time, the results indicate that the strength of formal institutions and the regional economy exert a critical moderating effect as the importance of social trust on new firm formation progressively increases in regions characterised by decreasing levels of economic development. Keywords Social capital . Trust . Institutions . Entrepreneurship . Regional economic development JEL classification L26 . O1 . O52 . R11
C. Corradini (*) Birmingham Business School, University of Birmingham, University House, Birmingham B15 2TT, England
1 Introduction New firm formation has long been regarded a fundamental element within theories of economic growth and regional development for the contribution of new firms in creating new jobs and promoting change, leading to a dynamic and resilient economy (Baumol 1990; Fritsch 2013). Reflecting the significant variation in the rate of new firm formation across regions, an extensive stream of research has pointed to the importance of the socioeconomic context for entrepreneurship, exploring regional effects defined by industry structure and density, employment and physical and human capital available in different areas (Reynolds et al. 1994; Armington and Acs 2002; Fritsch and Falck 2007; Fotopoulos 2013). Further research has investigated the role of the localised knowledge stock and the level and characteristics of knowledge spillovers (Rosenthal and Strange 2003; Acs et al. 2009; Corradini and De Propris 2015). However, part of the variation in new firm formation rates across regions remains unexplained, leading to a growing research on the role of formal and informal institutions on entrepreneurship (Baumol 1990; Estrin and Mickiewicz 2011; Urbano et al. 2019). Within this strand of research, scholars have provided new insights and evidence on the complex relationship between formal institutions such as quality of governance, business
e-mail: [email protected]
C. Corradini
regulation and strength of entrepreneurial ecosystems on cross-country differences in the rate of new firm formation (Estrin et al. 2013; Stenholm et al. 2013; Audr
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