The Impact of Regional Age Structure on Entrepreneurship

Abstract

abstract Empirical studies based on individual data have found an inverse U‐shaped relationship between age and the decision to start a business. Other studies have shown that becoming an entrepreneur is a regional event, with potential entrepreneurs benefiting from their local networks. This article links both strands of literature by introducing age‐specific peer effects. Using changes in the age distribution of the population of western German regions over time, we found—in accordance with microlevel analyses—an inverse U‐shaped relationship between the regional age structure and start‐up activity in a region. Moreover, our findings suggest that the age‐specific likelihood of becoming an entrepreneur changes with the size of the age cohort, pointing to the existence of age‐specific peer effects.