Spin-offs: Why geography matters

Based on unique data covering individuals, firms, industries and regions for the 1999-2005 period, we contribute with new knowledge concerning the impact of regional variables on spin-offs. Implementing a large number of controls, as well as different estimation techniques and robustness tests, we show that Jacobian externalities have a positive effect on spin-offs. Moreover, using an entropy measure to disentangle unrelated and related variety (RV), we conclude that the effect is confined to RV. These findings are likely to be associated with strong welfare effects: a standard deviation increase (decrease) in related (unrelated) variety increases spin-off propensity by approximately 25%. Other variables are shown to have economic effects of a similar magnitude but may have a different effect across sectors. Sensitivity analyses indicate that the impact of other determinants proposed in the literature (e.g., Marshallian externalities and scale effects) is too small to be detected.