Urban Innovation, Housing Costs, and Youth Entrepreneurship: Rethinking the Smart City Model

The increasing digital transformation of cities has placed smart urban ecosystems at the center of economic and policy discussions. While smart city advancements are often seen as catalysts for innovation and entrepreneurship, their socio-economic implications remain underexplored. This study examines the dual role of urban innovation in shaping youth entrepreneurship, considering both its enabling effects and potential constraints. While technological progress and digital infrastructures can lower barriers to entry and create new market opportunities, rising housing costs and affordability issues in technologically advanced cities may counterbalance these benefits, restricting access to urban entrepreneurial ecosystems. By applying a Push and Pull framework, this research investigates how urban innovation fosters youth entrepreneurship and whether escalating living costs moderate this relationship. Using a longitudinal dataset covering 38 Italian cities from 2009 to 2022 and employing Generalized Method of Moments (GMM) estimation, the study explores the non-linear effects of urban innovation on youth-led business creation. Preliminary results suggest that while urban innovation initially stimulates entrepreneurial activity, its benefits diminish as housing costs increase, leading to a potential inverted U-shaped relationship. This finding challenges the assumption that smart city development inherently fosters inclusive entrepreneurship and highlights the need for policies that balance technological progress with economic accessibility. By shedding light on the trade-offs between innovation and affordability, this research contributes to the broader discourse on entrepreneurial ecosystems in digitally transforming cities, offering critical implications for urban policymakers and stakeholders.