What is the Relationship between Entrepreneurship and Innovation Output? Evidence from 219 Economies over 1960–2018
52 Pages Posted: 17 Sep 2019
Date Written: April 17, 2019
Entrepreneurship is widely thought to be associated with innovation, yet the prior evidence about this relationship has been mixed. For this reason, some researchers have argued that the locus of innovation lies with large, professionally managed firms rather than new entrants. This study uses the largest available panel data comprising 219 economies over 1960-2018 and instrumental variables models to estimate empirically the relationship between entrepreneurship and innovation output at a national level, testing alternative mechanisms such as new entry and reliance on professional management as drivers of innovation output. The findings show that various measures of entrepreneurship, including rates of new company registration, were positively correlated with innovation within economies over time, after accounting for potential endogeneity in this relationship. Every 10 percent increase in the number of new companies registered per capita in a calendar year was associated with a 2.4 percent increase in the number of patent applications by residents and 34.6 percent increase in the value of high-technology exports per capita over the observation period. The empirical relationship between professional management and innovation output, however, was null. These findings have important implications for the literature on entrepreneurship and innovation and for entrepreneurship policy.
Keywords: Entrepreneurship, Innovation, Professional Management, Organizations
JEL Classification: O32, O57, M13, L26
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