To account for both dynamic and spatial dependence the authors develop a spatial panel VAR that builds on recent advances in the VAR literature to identify structural shocks using external instruments. They find that startup shocks have a small but persistent effect on local employment through population growth. Population growth, in turn, is largely driven by immigration. The authors also investigate how the responses differ by local characteristics such as population density. Finally, they show that startups are not closely linked to innovation.

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