Institutional Environment and New Firm Formation in Swedish Regions

This paper uses an institutional approach to investigate the relationship between the regional institutional environment and regional new firm formation. The importance of perceived attitudes regarding private enterprises, local taxes, political majority, the size of the government sector and perceived rules and bureaucracy on new firm formation in 286 Swedish municipalities are investigated. The empirical findings show that perceived positive attitudes toward private enterprises and municipalities governed by right bloc majority have higher new firm formation. A large local government sector on the other hand tends to crowd out new firm formation. The paper also explore if the different aspects of institutional environment are similar across industries. The pattern in the private service sector industries is most similar to the general pattern in the economy, while the only variable reflecting the institutional environment that influences new firm formation in manufacturing industries is perceived rules and bureaucracy. JEL classification codes: L1, L26, R11, O18, O43,