What kinds of relatedness promote new firm formation? Evidence from Italy

An emerging stream of entrepreneurship studies is debating how knowledge composition influences the capacity of territories to give birth to new firms. This paper aims to study the dynamics linking new firm formation and relatedness. Some studies demonstrate that proximity between different but related sectors positively influences new firms formation. Others point out how the presence of unrelated sectors can have a more significant impact. This paper studies these dynamics across 27 individual industries, computing measures of external and internal relatedness for each sector in Italy, using data on new firm formation between 2012 and 2014. The results suggest the broadly positive impact of external relatedness on new firm formation when compared to the impact of internal relatedness. The sectoral study of the impact of relatedness on new business creation could increase policymakers’ awareness of the capacity of individual sectors to promote favourable path-creation trajectories at the micro-level.