Population change and new firm formation in urban and rural regions

Many regions across the European Union, including regions in the Netherlands, face population decline, entailing changing demographics and related social and economic implications. This paper looks into the connection between population change and structure, and rates of new firm formation. Although it is clear that fewer people will eventually lead to fewer firms, as well as fewer new firms, it is assessed whether this negative relationship differs with the intensity of population change and across regional contexts. In order to establish the impact of population change on new firm formation, this paper examines data on population density, size, growth and decline, together with firm dynamics for the period 2003–09. The results show that the relationship between new firm formation and population change depends heavily on the regional context. The results indicate that new firm formation in urban regions tends to be negatively influenced by population change, while the impact in rural regions remains positive. In conclusion, clear differences are found in the intensity of the impact of population change on new firm formation according to the type of region. The regional context and the intensity of decline must be taken into account when determining the kind of coping mechanism needed to deal with the consequences of decline.