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Abstract: Earlier literature has analysed regional finance gaps by comparing metropolitan areas with peripheral areas on a relatively high level of aggregation and most often in a U.S. or U.K. venture capital context. Financial capital has been found to be concentrated in metropolitan areas and access to capital easier because entrepreneurs leverage on proximity to capital providers. However, regardless of whether it is metropoles, when there is an urban centre of a certain size or relative dominance in a region, it can be hypothesized that financial capital is likely to be attracted to this urban centre even within a peripheral region. The literature has been silent regarding financial 'centres' within peripheral areas. Survey responses from managers in 834 firms are used in the empirical analyses. We find that even within the periphery there is a periphery-core difference. We also find indications of differences in whether firms are financially constrained depending on the levels and types of geographical aggregation that are used in the models. Intra-regional differences accentuate the need for considering the appropriate regional level of policy making and the policy instruments. The paper contributes specifically to the analysis of geographical scale in regional financial constraints. The issue of scale is in the core of economic geography yet often disregarded both in research and in the process of designing regional policies.
Keywords: regional development, financial constraints, entrepreneurship innovation, periphery, economic geography, public policy
1.Introduction
The literature on financial constraints has primarily focused on characteristics and behaviour of firms pertaining to their liabilities of smallness and newness, or to their risk profile stemming from their industry, market, or innovativeness. However, additional characteristic of financially constrained firms concerns their location. Regional innovation policies at super-national, national, and regional levels of aggregation have therefore introduced an array of regional innovation financing instruments and -institutions such as regional venture capital funds, Regional Development Agencies, regional loan funds, ERD funding etc.
Despite the policy interest, we know relatively little on this aspect of financial constraints, and the studies we do have suffer from fundamental limitations. Generally, the approach adopted in the literature consists of analysing regional disparities with respect to financial capital between prosperous and peripheral regions. For example, Zhao and Jones-Evans (2017) study differences in access to finance...