Max Keilbach

The Theory of Knowledge Spillover Entrepreneurship

abstract The prevailing theories of entrepreneurship have typically revolved around the ability of individuals to recognize opportunities and then to act on them by starting a new venture. This has generated a literature asking why entrepreneurial behaviour varies across individuals with different characteristics while implicitly holding constant the external context in which the individual finds herself. Thus, where the opportunities come from, or the source of entrepreneurial opportunities, is also implicitly taken as given. By contrast, in this paper an important source of entrepreneurial opportunities is identified – knowledge and ideas created in an incumbent organization. By commercializing knowledge that otherwise would remain uncommercialized through the start‐up of a new venture, entrepreneurship serves as a conduit of knowledge spillovers. According to the theory of knowledge spillover entrepreneurship, a context with more knowledge will generate more entrepreneurial opportunities. By contrast, a context with less knowledge will generate fewer entrepreneurial opportunities. Based on a data set linking entrepreneurship to the knowledge context, empirical evidence is provided that is consistent with the proposition that entrepreneurial opportunities are not exogenous but rather systematically created by investments in knowledge by incumbent organizations.

Firm Level Implications of Early Stage Venture Capital Investment: An Empirical Investigation

The paper analyses the impact of venture capital finance on growth and innovation activities of young German firms. Among other variables, our panel of firm data includes data on venture capital funding and patent applications. With a statistical matching procedure we draw an adequate control group of non venture funded firms. The analysis gives evidence that innovative firms will be able to close a venture capital deal with higher probability. Once the firms are venture funded, they display higher growth rates but do not differ in their innovative output from otherwise comparable firms. We derive strategic implications.

Does Entrepreneurship Capital Matter

Economics has identified three types of capital as the drivers of economic growth—physical capital, human capital, and knowledge capital. This article introduces the concept of entrepreneurship capital and suggests that it is also an important factor shaping the economic performance of an economy. We define entrepreneurship capital as those factors influencing and shaping an economys milieu of agents in such a way as to be conducive to the creation of new firms. The hypothesis that entrepreneurship capital is positively linked to economic growth is then tested by examining the relationship between several different measures of entrepreneurship capital and regional economic performance, measured as per–capita income for Germany. The empirical evidence suggests that there is indeed a positive link between entrepreneurship capital and regional economic performance. These results suggest a new direction for public policy that focuses on instruments to enhance entrepreneurship capital.

Concubinage or marriage? Informal and formal cooperations for innovation

Based on a sample of German innovating firms that contains information on formal and informal innovation cooperation between customers and suppliers, we state that firms perceive informal cooperation as being more important than formal cooperation modes. We then investigate the determinants of firms? decisions to engage into the respective cooperation modes. In line with previous empirical work, we do not find much empirical evidence for the relevance of incoming spillovers. In addition, our results suggest that this finding holds as well for informal cooper- ations. A firm?s ability to protect its proprietary innovations, however seems to be a key determinant of formal as well as informal cooperations. Furthermor absorptive capacity and the organizational structur of in-house R&D play an important role. Another relevant driver of vertical cooperations are the innovation dynamics at the industry level. Firms who operate an R&D department and firms who are involved in costly R&D projects tend to cooperate formally rather than informally.

The localization of entrepreneurship capital: evidence from Germany

Whereas initially physical capital and later, knowledge capital were viewed as crucial for growth, more recently a very different factor, entrepreneurship capital, has emerged as a driving force of economic growth. In this paper, we define a regions capacity to create new firms start-ups as the regions entrepreneurship capital. We then investigate the local embeddedness of this variable and which variables have an impact on this variable. Using data for Germany, we find that knowledge-based entrepreneurship capital is driven by local levels of knowledge creation and the acceptance of new ideas, indicating that local knowledge flows play an important role. Low-tech entrepreneurship capital is rather increased by regional unemployment and driven by direct incentives such as subsidies. All three measures are locally clustered, indicating that indeed, entrepreneurship capital is a phenomenon that is driven by local culture, and is therefore locally bounded.

Spatial knowledge spillovers and the dynamics of agglomeration and regional growth

As shown in chapter 2, the classical model of growth predicts regional convergence of growth rates of per-capita income. Indeed, on a regionally aggregated level — such as different countries or large administrative subregions of countries as e.g. the federal states of the US — we could observe regional convergence.1 These regions have in common that they are similar in structure, i.e. they usually have rural and agglomerated areas and even some kind of capital that is the administrative centre of the country (or the region). However, as we took a closer look at spatially disaggregated subregions (in section 2.3.2.2) such a homogenous convergence patterns could no longer be observed. It is true that we observe convergence between agglomerated areas and their surrounding less densely populated areas. Rural areas however display a non-converging behaviour regarding their growth rate of per-capita income.2 This is a puzzling observation which is not conform with the neoclassical growth theory. Apparently, the character of a region, i.e. whether it is a rural area, a suburb or a city determines its growth trajectory. This would imply that spatially aggregated analysis would simply average away the effects of regional factor accumulation and thus of regional growth.

Neural Networks in Economics

Neural Networks – originally inspired from Neuroscience – provide powerful models for statistical data analysis. Their most prominent feature is their ability to “learn” dependencies based on a finite number of observations. In the context of Neural Networks the term “learning” means that the knowledge acquired from the samples can be generalized to as yet unseen observations. In this sense, a Neural Network is often called a Learning Machine. As such, Neural Networks might be considered as a metaphor for an agent who learns dependencies of his environment and thus infers strategies of behavior based on a limited number of observations. In this contribution, however, we want to abstract from the biological origins of Neural Networks and rather present them as a purely mathematical model.

The Knowledge Spillover Theory of Entrepreneurship and Technological Diffusion

The prevailing theories of entrepreneurship have typically revolved around the ability of individuals to recognize opportunities and act on them by starting new ventures. This has generated a literature asking why entrepreneurial behavior varies across individuals with different characteristics, while implicitly holding the external context in which the individual finds oneself to be constant. Thus, where the opportunities come from, or the source of entrepreneurial opportunities, are also implicitly taken as given. By contrast, we provide a theory identifying at least one source of entrepreneurial opportunity – new knowledge and ideas that are not fully commercialized by the organization actually investing in the creation of that knowledge. The knowledge spillover theory of entrepreneurship holds individual characteristics as given, but lets the context vary. In particular, high knowledge contexts are found to generate more entrepreneurial opportunities, where the entrepreneur serves as a conduit for knowledge spillovers. By contrast, impoverished knowledge contexts are found to generate fewer entrepreneurial opportunities. By serving as a conduit for knowledge spillovers, entrepreneurship is the missing link between investments in new knowledge and economic growth. Thus, the knowledge spillover theory of entrepreneurship provides not just an explanation of why entrepreneurship has become more prevalent as the factor of knowledge has emerged as a crucial source for comparative advantage, but also why entrepreneurship plays a vital role in generating economic growth. Entrepreneurship is an important mechanism permeating the knowledge filter to facilitate the spillover of knowledge, and ultimately generating economic growth.

The Contribution of Entrepreneurship to Economic Growth

When Baumol (1968) made the above observation he went on to lament that economic theory to that day systematically ignored the entrepreneur and something should be done about that. Now, 40 years later, there are few economists that would deny the importance of the entrepreneur in modern, innovative and growing economies. But as a recent survey by Bianchi and Henrekson (2005) has shown, widespread sympathy and recognition has not led to a successful entry in mainstream economic models of growth and innovation. One possible reason for this is the multitude of functions that entrepreneurs have been proposed to perform in capitalist economies. Walras (1874) (and later Kirzner, 1973) considered the function of the entrepreneur as seeking arbitrage opportunities. As such, the entrepreneur is the driving force behind the tâtonnement process that leads to the general equilibrium in the Walrasian model. Once the equilibrium is attained, however, the entrepreneur is no

Determinants and Impact of Entrepreneurship Capital: The Spatial Dimension and a Comparison of Different Econometric Approaches

The introduction of endogenous growth theory has led to new interest in the role of the entrepreneur as an agent driving technical change at the local regional level. This book examines theoretical and methodological issues surrounding the interface of the entrepreneur in regional growth dynamics on the one hand and on the other presents illuminating case studies. In total the book’s contributions amplify understanding of such critical issues as the relationship between innovation and entrepreneurship, the entrepreneur’s role in transforming knowledge into something economically useful, and knowledge commercialization with both conceptual and empirical contributions.