Macroeconomic Determinants, Innovation and the Birth of New Firms: Negative Binomial Regression Approach

This paper employs the random-effects negative binomial regression model (RENBM) to test the relationship between macroeconomic factors and the birth of new firms. The test is across countries and uses count data. We consider a sample of 135 panel-data observations, taken from 27 countries in the European Union (EU) during the period 2004 to 2008. We found that the birth of new firms is positively related to the growth of gross domestic product (GDP), inflation and openness, and is negatively related to unemployment. This result is in accordance with macroeconomic theory. The results also show that expenditure on research and development (R&D) has a significant positive effect on the number of new firms. This result further supports the hypothesis of new economic growth theory. Moreover, the empirical evidence shows a positive correlation between the number of new businesses and ethnic heterogeneity.