Industrial Agglomeration and Proliferation of Startup Firms in the Kyushu Region

In recent years, we have noticed a proliferation of startup firms being established in Kyushu, especially in Fukuoka City. We analyze two propositions: (1) The determinants of the startup company location are the initial costs and the expected profitability; (2) The magnitude of the initial costs and the expected profitability are influenced by regional variables. In the estimation results using nationwide municipality-level data, the size of industrial agglomeration and the degree of turnover of the local population through migration improve profitability, while competitive markets, better access to finance, and the diversity of industry structure at the local level reduce the initial costs. In the case of Kyushu data, only the competitive market environment has the effect of suppressing the initial cost of startups. In Kyushu, which is located a long distance from the central markets in Kansai or Kanto, implementing policies that minimize initial costs rather than policies that increase profitability will promote startups.