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Who introduces structural change in regional economies: Entrepreneurs or existing firms? And do local or nonlocal establishment founders create most novelty in a region? We develop a theoretical framework that focuses on the roles different agents play in regional transformation. We then apply this framework, using Swedish matched employer-employee data, to determine how novel the activities of new establishments are to a region. Incumbents mainly reinforce a region's current specialization: incumbent's growth, decline, and industry switching further align them with the rest of the local economy. The unrelated diversification required for structural change mostly originates via new establishments, especially via those with nonlocal roots. Interestingly, although entrepreneurs often introduce novel activities to a local economy, when they do so, their ventures have higher failure rates compared to new subsidiaries of existing firms. Consequently, new subsidiaries manage to create longer-lasting change in regions.

A dynamic and vibrant private sector is crucial to economic growth, with firms making new investments, creating jobs, improving productivity, and promoting growth. Entrepreneurial activity is pivotal to the continued dynamism of the private sector, as the generation of new businesses fosters competition and economic growth. This is particularly relevant for Azerbaijan, whose government faces a central challenge to create conditions that will facilitate growth in nonoil tradable sectors. The core objectives of Azerbaijan's development strategy are to diversify the economy away from the oil sector and sustain high employment and growth. Encouraging high-growth entrepreneurship can help Azerbaijan achieve these goals as it moves toward new opportunities in value added and tradable sectors. This study shows that high-growth entrepreneurialism is low in Azerbaijan and that innovative activity among firms is very low. Several factors hinder business growth and entrepreneurship: lack of competition, especially among smaller firms; financial systems that are not conducive to business development. Companies cite high interest rates and risk-averse lending policies as substantial hindrances to expansion. In addition, risk capital is in short supply; and lack of industry-relevant skills. The government could play an important role by removing bottlenecks that impede entrepreneurialism in the general business environment as well as by designing new financial policy instruments that foster entrepreneurship and innovation. In doing so, the government needs to exercise care that the design and management of these instruments prevent capture or corruption and promote efficiency. Lack of competition is an issue in Azerbaijan, particularly for Small and Medium Enterprises (SMEs), which face uneven treatment within the enterprise sector.

Job creation and productivity growth are at the forefront of today's global development agenda. The 2013 world development report on jobs identified entrepreneurship as an important tool in addressing these dual goals. This study uses the entrepreneurship model put forth in the organization for Economic Co-operation and Development (OECD)-Eurostat Entrepreneurship Indicator Program (2009), with minor modifications. The model comprises various determinants that policy can affect and that in turn influence entrepreneurial performance, or the amount and type of entrepreneurship that take place. The model then refers to the impact of entrepreneurship on higher-level goals such as economic growth, job creation, and poverty reduction. This study focuses on determining the level of entrepreneurship in Georgia and analyzes the role of each determinant in both fostering and constraining entrepreneurial activity. Entrepreneurs view opportunities in the economy by measuring their profit-making potential; that is their first motivation. Entrepreneurs will not pursue a societal need unless they can successfully make a profit. Entrepreneurship also depends on various social and individual characteristics of gender and culture. It involves taking risks, and potential entrepreneurs cannot be risk-averse. A fundamental question stemming from analyzing these determinants of entrepreneurship is how to design effective public policy that promotes innovative firm creation and enables existing firms to catch up, improve productivity, and grow. Experiences from Asian countries and developed economies have shown that innovative Small Medium Enterprises (SMEs) and knowledge-based firm creation have played a major role in the development of new national economic advantages. In this context public policy is pivotal in creating an enabling environment that helps alleviate the market failures that inhibit firm growth. Emerging markets have other environmental conditions that are not present (or are less prevalent) in developed markets, and investors considering investing in emerging markets will face added risk as a result.