New firms have been regarded as one of the key elements for local development. Existing studies focus on the direct impact of new firms via labour markets and job creation. However, the impact of new firms on regional innovation is less investigated. Our analyses are conducted for a developing country, Turkey. Findings of the study show that new firms are crucial for the regional differences in innovation. Results are robust to spatial dependence, an alternative firm formation measure, various regional controls and endogeneity issues. Additionally, impact of the new firms is spatially non-homogenous reminding the ineffectiveness of one-size-fits-all type policies.
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