Differences in Regional Firm Formation Rates: A Decomposition Analysis

Abstract

This article examines regional differences in recent business formation activity in the United Kingdom over the period 1994–2001. It considers the extent to which regional differences can be accounted for by (i) variations in industrial structure, with some regions having a greater or lesser share of sectors where the formation rate tends to be high; and (ii) variations across regions in the formation rate in the same sector. The article shows wide variations across regions and over time in the relative importance of these two factors. The article explores some policy implications of this decomposition.