Analysing rural start-up entrepreneurship: new OECD-JRC insights from Portugal
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A new working paper explores how geography shapes entrepreneurship in Portugal, challenging the usual narrative. While start-up rates appear lower in rural areas than in urban ones, this gap reverses once demographic and sectoral differences are taken into account.
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The paper, a collaboration between the Organisation for Economic Co-operation and Development (OECD) and the European Commission’s Joint Research Centre (JRC), examines the geography of start-up entrepreneurship in Portugal, focusing on rural-urban differences.
Using granular data from 2010 to 2022, it finds statistically significant rural-urban gaps in start-up entrepreneurship. On average, the probability of starting a firm is lower in rural areas, with a start-up rate 6% below that of urban areas.
However, the analysis shows that these differences are largely driven by population characteristics and sectoral structure. Once these elements are taken into account, the picture changes: rural areas display a higher entrepreneurship potential, with around 61 more start-ups per 10 000 workers over the sample period.
These differences reflect important compositional factors. Rural entrepreneurs in Portugal tend to be older, less likely to have an immigrant background, and less often female. Individuals with characteristics more strongly associated with entrepreneurship, such as higher levels of education, are less prevalent in rural areas. At the same time, sectors that tend to have higher firm creation rates – such as ICT, finance, professional services – are less common.
Additionally, the paper finds that rural start-ups are more likely to survive their first five years than their urban counterparts. However, they tend to remain smaller, employing fewer workers at lower average wages. This suggests that the main challenge in many rural areas may not be firm creation, but rather scaling and growth.
Based on these findings, the paper argues that differences in entrepreneurship across urban and rural areas are not only about place-based constraints, but also about who lives there and which sectors are present. This has important implications for policy: place-based policies tailored to rural labour markets, skills, and business environments can help unlock rural entrepreneurial potential and job creation.
Explore the latest Rural Pact resources on entrepreneurship and smart and start-up villages.