Working Paper: CEPR ID: DP4905
Authors: David B. Audretsch; Max Keilbach
Abstract: Since the early 1980s, the role and general perception of entrepreneurship and start-up activities has changed drastically. In this paper, we investigate what determines regions? entrepreneurial behaviour and the impact of it on regional economic performance. We argue that economic knowledge not only differs from traditional factors of production due to its public goods characteristic but it is also uncertain. With that perspective, the role of entrepreneurship is to take on the corresponding risk by starting up a new firm and thus to ?test? uncertain economic knowledge. This implies that knowledge spills over to the start-up firm and therefore entrepreneurship can be expected to have a positive impact on economic performance in a knowledge-based economy. We test this hypothesis using a production function approach. Using data on German regions, we estimate a two-equation system that regresses on both variables, entrepreneurship and economic performance, simultaneously, thus correcting for an endogeneity bias. We find a significant impact of entrepreneurship capital on economic output. On the other hand, spatially-specific entrepreneurship capital is shaped by regional-specific factors. However, the extent of this is different for knowledge based and non-knowledge based measures of entrepreneurship. We derive policy conclusions from our findings.
Keywords: economic output; endogeneity bias; entrepreneurship; production function; three stage least squares
JEL Codes: M13; O32; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Entrepreneurship Capital (P12) | Regional Economic Performance (R11) |
| Regional Economic Performance (R11) | Entrepreneurship Capital (P12) |
| Entrepreneurship Capital (P12) | Economic Output (E23) |
| Entrepreneurship Capital (P12) | Knowledge Spillovers (O36) |
| Entrepreneurship Capital (P12) | Competition (L13) |
| Entrepreneurship Capital (P12) | Diversity (J15) |
| High Levels of Entrepreneurship Capital (L26) | Positive Economic Outcomes (D78) |