Recent Research: Growth & Entrepreneurship: An Empirical Assessment

Just as bread won't rise without yeast, the key knowledge-building ingredients for many state tech-based economic development strategies - increasing investments in university-based research, emphasizing workforce development and science and math education, and identifying clusters of co-located firms in related industry sectors - won't lead to the spillovers of knowledge critical to sustaining growth without an active reagent. The new discussion paper from the London-based Centre for Economic Policy Research, Growth & Entrepreneurship: An Empirical Assessment, by authors Zoltan Acs, David Audretsch, Pontus Braunerhjelm and Bo Carlsson concludes that technology-based entrepreneurship serves as that reagent.

Using a time-series panel of entrepreneurship data for 18 countries in their model, Acs, et al. found that changes in entrepreneurship rates have a positive impact on changes in economic growth, regardless of time (1980s or 1990s). Changes in R&D expenditures as a percentage of gross domestic product, however, were found to have a positive impact on changes in economic growth only during the 1990s, not the entire period. This second result, the authors point out, is not meant to challenge "the importance, or even primacy, of knowledge investments in generating economic growth." It merely demonstrates that those investments, alone, are not sufficient to sustain growth. The presence or addition of tech-based entrepreneurship would appear to be a critical ingredient to transforming knowledge investments into economic growth.

It is important to note that in building the econometric model, the authors distinguished technology entrepreneurship - specifically, the creation of start-up firms to commercialize new technology - from university technology transfer and technology adoption by existing firms. This is noteworthy because there seemingly is a growing concern within the tech-based economic development community that increased emphasis on tech entrepreneurship is causing some practitioners and policymakers to overlook the contribution that can be made by incumbent firms becoming more innovative or commercializing tech.

The model presented in Growth & Entrepreneurship, however, suggests that it is new firm creation that sustains entrepreneurship and economic growth over the long term. Future research, the authors suggest, may identify other mechanisms that could stimulate spillovers in addition to or instead of tech entrepreneurship.

So what are the policy implications of the research for state and local tech-based economic developers?  The paper suggests the need to adopt policies "that not only promote R&D investments" (R&D tax credits and subsidies being provided as examples) but also strive to exploit the spillover role of tech entrepreneurship.

An increasing number of states are investing hundreds of millions of dollars into their university research enterprise - the physical infrastructure, the human capital and the research itself. The case has been made in many state legislatures for the need to support research as a means toward economic growth. Questions members of the tech-based economic development community may ask themselves could include: What are the policy needs of our technology entrepreneurs? Are those needs being met by the private market, and, if not, by our TBED infrastructure? Is the state of our regional innovation system sufficiently robust to nurture and sustain technology start-ups? Are these knowledge-building investments being made in balance with the other needs of our innovation and entrepreneurship support structure?

Growth & Entrepreneurship: An Empirical Assessment is available for purchase ($5 for the PDF) at: http://ssrn.com/abstract=893068

Links to this paper and more than 3,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.