Fostering rural entrepreneurship: An ex-post analysis for Spanish municipalities

Entrepreneurs in rural areas contribute enormously to these territories, but they also face challenges not encountered by their urban counterparts. These problems include lack of basic infrastructure and fewer opportunities to exploit new technologies and engage in innovation projects. Research into the limitations experienced by rural entrepreneurs is scarce. The present study seeks to provide a better understanding of these problems through an ex-post analysis of an innovative policy designed to foster rural entrepreneurship. This policy adopts a “bottom-up” approach to promoting relationships among different parts of the entrepreneurial ecosystem. Among the recipients of this policy, some also benefited from other programs aimed at promoting technological innovation, technology adoption and basic infrastructure improvements. To assess the influence of the policy we conducted a municipality (LAU-2) level analysis using unique data on some 12.6 million beneficiary projects. We employed a recently developed difference-in-difference method to estimate the causal effect of this bottom-up policy on local workers. We did not identify any spillover effects from the implementation of this policy. We found a positive impact which was effective for reducing unemployment in the treated areas. Unemployment levels also reduced significantly in municipalities that received funds for innovation and enhanced infrastructure; however, among the group that received help for technology adoption unemployment levels did not change. This points to the importance of basic infrastructure to enable innovation and increase technology adoption in rural areas. Also, the lower effects found for female workers - one of the most vulnerable groups within the ecosystem – suggest that the policy should be refined to avoid these unintended effects on rural inequality.