Recent Research: Region’s personality makeup helps shape entrepreneurial behaviors

Building on top of the notion that diversity of industry is central to a region’s entrepreneurial success, recent research has noted that the personalities of people living throughout a region also play an important role in local knowledge spillover and the economic diversity of the area. The report, Entrepreneurship in Cities by Sam Tavassoli, Martin Obschonka, and David B. Audretsch, examines the relationship between a city’s entrepreneurial success and its ability to provide a favorable and connected environment for its residents through urban density and local psychological openness.

The authors cite the continued influence of urban planning researcher Jane Jacobs, who found that diversity and urban density provided a favorable structural city environment for innovation and economic growth. However, the report notes that the majority of entrepreneurially-minded scholars have built on Jacobs’ research by focusing only on the diversity of industries and firms within a city, leaving behind the human element that Jacobs’ cited as an important contributor to a region’s success.

To better understand the relationship between city environments, their residents, and the area’s ultimate innovation and entrepreneurial success, the authors set out to “combine Jacobs’ concept and related existing research on knowledge spillovers and human capital with a psychological agency perspective to entrepreneurship and a geographical psychology perspective.” By doing so, the report presents two hypotheses: the first being that the openness to new ideas and experiences by an area’s residents, referred to by the authors as local openness, has a positive effect on the overall entrepreneurship of a region, and the second being that a favorable structural city environment can strengthen the positive effects provided by local openness. The authors explored these hypotheses through an empirical investigation of entrepreneurship across cities within the U.S. while also examining the factors that determine a favorable structural city environment, primarily a region’s levels of density and diversity.

To build an understanding of a region’s local openness, the authors utilized a large-scale personality dataset known as the Gosling-Potter Internet Project, a collection of personality data that measures individuals openness, conscientiousness, extraversion, agreeableness, and neuroticism. The dataset also includes the location of the participants, allowing the authors to aggregate the individual personality trait scores to the city level to determine the local openness of the region.

The report confirms both hypotheses, finding that the “level of regional openness of cities positively and statistically predicts the quality of entrepreneurship”, noting that, with all else being equal, an increase in a city’s openness led to a jump in the quality of entrepreneurship within the region.  Likewise, cities with favorable structural environments, such as high diversity and high density (measured by the authors on both a population-based and street-based level), were found to increase the positive effect of the region’s openness by between 20 to 35 percent.

The authors explain that policies can serve as a method of stimulating and enhancing a region’s openness by promoting cultural and intellectual growth throughout its population and by working to move beyond an area’s resistance to change. Likewise, regions can work towards developing a more favorable city environment by promoting the coming together of its people and by offering a diverse array of new ideas and knowledge outlets to encourage innovation and economic vitality.

The full report, to be published as part of the September 2021 issue of Research Policy, can be accessed here.