The number of new firms per capita in capital regions is 1.5 times higher than in the rest of their respective countries.
The measures taken to contain the COVID-19 pandemic have been generating widespread disruptions to the activities of many firms. Although firms of all sizes were affected, small and medium-sized enterprises (SMEs) were hit hardest due to their limited financing capacity compared to larger ones forcing them to run out of business or lay-off workers (OECD, 2020). In the post-COVID period, the creation of new firms will play an essential role in the recovery of economic activity and employment in regions. This section assesses the extent to which regions are able to enhance the creation of new firms generating employment.
Capital regions are often centres of economic activity and innovation in their respective countries, in particular when it comes to the presence and creation of firms. In 2017, capital regions accounted for 6% of the national population but they hosted 10% of all firms in their respective countries. The importance of capital regions is also visible in terms of new enterprises. The number of new firms per capita in capital regions is 1.5 times higher than in the rest of their respective countries on average (Figure 2.22). In this respect, the largest differences are observed in the Czech Republic and the Slovak Republic, where capital regions have twice as many new firms as the rest of the country.
The regional business environment in the OECD area is characterised by a considerable churning of firms, as new firms replace old ones every year. In 2017, 17% of firms with at least 1 employee in OECD regions consisted of newly created firms. However, the distribution of these new firms across regions can be highly uneven and differ from that of the population. In 2017, 57% of all newly created firms were located in predominantly urban regions although these regions were home to only 33.7% of the national population. The firm birth rate in predominantly urban regions was 2.1 percentage points (or 18%) higher than in other types of regions within the same country in 2017 (Figure 2.23). In some countries, such as Austria, France and the United Kingdom, that gap was larger than 30%, revealing a stark difference across places in terms of business dynamism.
New firms matter for regional economies in multiple important ways. They create new jobs, foster innovation and generate demand for other existing firms, with a direct contribution to the regional employment and economic dynamism. In 2017, new firms (i.e. those firms created in the previous 12‑month period) directly employed an average of 3% of all employees in OECD regions. Notwithstanding a similar size of new firms across regions (2.5 employees in predominantly urban regions compared to 2.3 in other types of region), their weight on regional employment tends to differ depending on the country (Figure 2.24). Overall, across 17 OECD countries with available data, employment created by new firms accounted for 2.6%, 3.3% and 3.2% of the total employment in predominantly urban, intermediate and rural regions respectively.
