Study Finds Rural Portugal Has Stronger Start-Up Potential Than Cities

A new OECD study is challenging a common belief that entrepreneurship is mainly an urban phenomenon. Produced by the OECD Centre for Entrepreneurship, SMEs, Regions and Cities in collaboration with the European Commission's Joint Research Centre, the report takes a deep dive into how and where businesses are created in Portugal. What it finds is surprising: rural areas, often seen as economically weaker, may actually hold untapped entrepreneurial potential.

At first glance, the numbers seem to confirm the usual story. Over the past decade, Portugal has seen a decline in new business creation, and rural regions consistently show slightly fewer start-ups than cities. This has often been interpreted as a sign that rural economies are falling behind. But the report argues that this view is too simplistic.

The Hidden Strength of Rural Entrepreneurs

When researchers looked more closely, they found that the gap between rural and urban entrepreneurship is largely due to differences in people and industries, not to a lack of ambition or ability. Rural entrepreneurs tend to be older, less likely to be women or immigrants, and more likely to work in traditional sectors like construction, agriculture, and retail. Urban entrepreneurs, meanwhile, are more active in high-growth sectors such as technology, finance, and professional services.

These differences play a big role in shaping start-up rates. Once the study adjusts for them, the picture changes dramatically. Rural areas actually show a higher underlying tendency to start businesses than cities when similar people and industries are compared. In simple terms, the countryside is not less entrepreneurial, it just looks that way because of who lives there and what jobs dominate.

Why Education and Sectors Matter

One of the most important factors influencing entrepreneurship is education. People with higher levels of education are more likely to start businesses. However, rural areas tend to have fewer highly educated individuals, which helps explain why fewer start-ups are observed.

The type of industry also matters. Urban areas are more focused on sectors where starting and growing new businesses is easier, such as digital services or finance. Rural areas, on the other hand, are more concentrated in sectors that typically have lower start-up rates. This combination of education and industry structure explains much of the gap seen in the raw data.

Strong Survival, Slower Growth

Another key finding of the report is that rural businesses are more likely to survive than urban ones. Firms in rural areas tend to stay in operation longer, suggesting they are more stable and resilient. This may be due to lower competition, stronger local connections, or lower operating costs.

However, there is a trade-off. While rural firms last longer, they usually grow more slowly. They tend to employ fewer workers, pay slightly lower wages, and generate lower sales compared to urban businesses. This reflects challenges such as smaller local markets, fewer workers available, and limited access to large networks.

In contrast, cities offer faster growth but also higher risk. Businesses in urban areas face intense competition, meaning many fail quickly, but successful ones can scale rapidly. Rural areas offer a different model, less dramatic growth, but greater stability.

What This Means for Policy

The findings suggest that rural areas are not lacking in entrepreneurial potential, but they face structural challenges. Policies aimed at boosting business creation need to recognise these differences rather than treating all regions the same.

Improving education and skills in rural areas could make a big difference, as could better infrastructure, especially internet connectivity and transport. These improvements would help rural entrepreneurs access wider markets and new opportunities.

At the same time, policymakers should build on what rural areas already do well. Instead of trying to replicate urban economies, they can support industries that match local strengths, such as agriculture, tourism, or small-scale manufacturing.

A New View of Rural Economies

Overall, the OECD report paints a more hopeful picture of rural entrepreneurship. While fewer businesses may be created in these areas, those that do emerge are often more resilient. This challenges the idea that economic activity is naturally concentrated in cities.

The real issue is not a lack of entrepreneurial spirit in rural Portugal, but the conditions that shape how that spirit is expressed. With the right support, rural areas could play a much bigger role in driving balanced and inclusive economic growth.