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The authors investigate the effects that regional start-up activity has on employment in new and in incumbent businesses. The analysis is performed for West German regions over the 1987-2002 periods. It shows that the effects of new businesses on employment in the incumbents are significantly positive and that this indirect effect on incumbent employment leads to more jobs than what is created by the newcomers. They find that the effect of new business formation on incumbents is exclusively driven by start-ups that survive a certain period of time. They draw conclusions for policy and for further research.
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