Market Size and Entrepreneurship

Author Name SATO Yasuhiro  (Osaka University) /TABUCHI Takatoshi  (Faculty Fellow, RIETI) /YAMAMOTO Kazuhiro  (Osaka University)
Creation Date/NO. January 2012 12-E-002
Research Project Theory and Empirics of Urban Growth and Spatial Structure
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In order to examine the impacts of market size on entrepreneurship, we estimate a monopolistic competition model that involves the workers' decisions to pursue entrepreneurship by using data on Japanese prefectures. Our results show that a larger market size in terms of population density leads to a higher incentive for individuals to become entrepreneurs. A 10% increase in the population density increases the share of people who wish to become entrepreneurs by approximately 1%. In contrast, such a positive effect on the self-employment rate is observed only for prefectures with very high or very low densities. The self-employment ratio is negatively associated with population density in prefectures with medium densities.