Are there self-reinforcing spatial entrepreneurship traps? Evidence from Covid-19 lockdowns and business birth rates in Chile

Why do regional disparities in entrepreneurial activity persist over time? This paper examines whether such persistence reflects slowly changing local conditions or self-reinforcing dynamics that generate entrepreneurial “spatial traps.” Using a novel panel dataset on business births and deaths across Chilean municipalities from 2006 to 2023, we exploit the heterogeneous timing and duration of Covid-19 lockdowns as a large exogenous shock to local entrepreneurial ecosystems. The results show that lockdowns significantly increased business closures in 2020 and stimulated business creation in 2021, although municipalities exposed to earlier and longer lockdowns experienced larger increases in closures and weaker rebounds in new firm formation. Mean-reversion analysis indicates that these effects largely dissipated by late 2022, while threshold regressions provide no evidence of discontinuous recovery dynamics or persistent entrepreneurial traps. Overall, the findings suggest that long-run regional differences in entrepreneurship are more consistent with persistent local framework conditions than with self-reinforcing dynamics, highlighting the importance of sustained investments in local capabilities and institutions rather than short-term policy interventions.