firms and relocation of incumbent firms. Through this process, new routines are being diffused in
space. From an evolutionary perspective, one does not analyse new firm location solely as the
outcome of rational decisions directed by price differentials, as in neoclassical theory, or in terms
of comparing institutional frameworks in different areas, as in institutional theory. Rather, one is
interested in the history of the founder and key employees of a new venture to account for
routines transferred from a previous activity, and how that affects their survival. And, to
understand uneven rates of regional entrepreneurship and entrepreneurial success, one is
interested in the spatial distribution of resources required to start up a new business. As
entrepreneurs require resources (capital, labour, networks, knowledge) to start new ventures, and
resources tend to concentrate in space, as in urban areas (Hoover and Vernon, 1959) or
specialised clusters (Porter, 2000), the probability of starting a new venture can also be made
dependent on territorial conditions. This is not to say that price differentials (the neoclassical
view) and place-specific institutions (the institutional view) do not matter. Rather, prices and
institutions only condition the range of possible economic behaviours and their locations, while
the actual behaviours are determined by the path dependent history of actors involved in
particular territorial settings (Boschma and Frenken, 2006).
The core concept of path dependence can also be fruitfully applied to firm location. Location
decisions by firms are heavily constrained by the past. For example, many firms just start at
locations where the founder lives, due to bounded rationality, or because the founder is socially
embedded in local networks, and it is well known that most spin-offs locate near the parent firm
(Cooper and Dunkelberg, 1987; Klepper, 2001). In either case, previous decisions taken in the
past determine the location decision of a new firm. Path dependence also affects the probability
of relocation as firms are expected to display a considerable degree of locational inertia. The
probability of relocation decreases over time as a firm develops a stable set of relations with
suppliers and customers and sunk costs accumulate in situ (Stam, 2003). Of course, even though
path dependence constrains relocation of the firm, one can expect the firm to outsource parts of
the production to low-wage locations, in particular, activities that rely less on the organisational
and core competences built up in situ over time (see Vernon, 1969). The probability and
economic success of off-shoring, however, depends on a firm’s capability to transfer its routines
to different localities (Kogut and Zander, 1993).