Venture Capital and Industrial 'Innovation'

35 Pages Posted: 22 Aug 2008 Last revised: 15 Sep 2008

See all articles by Masako Ueda

Masako Ueda

University of Wisconsin, Madison - School of Business; Centre for Economic Policy Research (CEPR)

Masayuki Hirukawa

Setsunan University

Multiple version iconThere are 2 versions of this paper

Date Written: September 9, 2008


For the sample period of 1965-1992, Kortum and Lerner (2000) find that venture capital (VC) investments have a positive impact on patent count at industry level, and this impact is larger than that of R&D expenditures. We confirm that this positive impact continued to be present and became even stronger in late 90s during which VC industry experienced an unprecedented growth. We then proceed to study if this positive impact of VC is also present on productivity growth, which is a measure of innovation alternative to patent count. Unlike the impact on patent count, we do not find that VC investment affects total factor productivity growth. We do find that VC investment is positively associated with labor productivity but this positive impact is originated from the technology substitution from labor to other productive inputs such as energy and material. Therefore, our finding suggests that, at industry level, VC investment increases the patent propensity but may not necessarily improve the productive efficiency. Various interpretations are offered why this may be the case.

Keywords: Venture Capital, Patent, Productivity, Innovation, Factor Substitution

JEL Classification: G24, D24, O31, O32

Suggested Citation

Ueda, Masako and Hirukawa, Masayuki, Venture Capital and Industrial 'Innovation' (September 9, 2008). Available at SSRN: or

Masako Ueda (Contact Author)

University of Wisconsin, Madison - School of Business ( email )

975 University Avenue
Madison, WI 53706
United States
608-262-3656 (Phone)
608-265-4195 (Fax)

Centre for Economic Policy Research (CEPR)

United Kingdom

Masayuki Hirukawa

Setsunan University ( email )

17-8 Ikedanaka-machi
Neyagawa City, Osaka 572-8508
+81-72-839-8095 (Phone)

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