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Abstract:
Using a panel of U.S. metropolitan areas from 1993 to 2002, we find that an increase in the local supply of venture capital (VC) positively affects (i) the number of firm starts, (ii) employment, and (iii) aggregate income. Our results remain robust to a wide variety of specifications, including ones that address potential endogeneity in the supply of venture capital. The magnitudes of the effects, moreover, imply that venture capital stimulates the creation of more firms than it directly funds. That result appears consistent with either of two mechanisms: One, would-be entrepreneurs that anticipate a future need for financing more likely start firms when the supply of capital expands. Two, companies funded by venture capital may transfer tacit knowledge to their employees thereby enabling spinoffs, and may encourage both their own employees and others to become entrepreneurs through demonstration effects.

Venture capital, financial intermediaries, entry, employment, wage bill

Abstract:
We find that the enforcement of non-compete clauses significantly impedes entrepreneurship and regional growth. Based on a panel of metropolitan areas in the United States from 1993 to 2002, our results indicate that, relative to regions in states that enforce non-compete covenants, an increase in the local supply of venture capital in states that restrict them has significantly stronger positive effects on (i) the number of patents, (ii) the number of firm starts, and (iii) employment. We address potential endogeneity issues in the supply of venture capital by using endowment returns as an instrumental variable. Our results point to a strong interaction between financial intermediation and the legal regime in promoting entrepreneurship and growth.

Venture capital, financial intermediaries, legal institutions, entry, employment, innovation, wages

Abstract:
Entry barriers to an industry may be located in the activities of related industries rather than in the focal industry itself. Specifically, we use an experiment conducted by the Swedish government alcohol monopoly in which a group of stores was converted from behind-the-counter to self-service sales. The format change is coincident with a significant drop in the concentration of sales across concentration measures and product categories. Further, new products do considerably better in self-service than in behind-the-counter stores. These results have broad implications for policies that require behind-the-counter sale of consumer products as commonly seen in tobacco, alcohol, and pharmaceuticals.

barriers to entry, market concentration, retail, regulation