Technological Determinants of Entrepreneurship: Technological Determinants of Entrepreneurship: Challenges for the European Public PoliciesChallenges for the European Public Policies

João LeitãoJoão Leitão

The Future for Entrepreneurship and SME The Future for Entrepreneurship and SME Policies in European CountriesPolicies in European Countries

  

May 5th, Stockholm, SwedenMay 5th, Stockholm, Sweden

University of Beira InteriorUniversity of Beira Interior

OutlineOutline MotivationMotivation

ObjectivesObjectives

Entrepreneurship LiteratureEntrepreneurship Literature

Linking Neglected DeterminantsLinking Neglected Determinants

Econometric MethodologyEconometric Methodology

ResultsResults

Discussion and Final RemarksDiscussion and Final Remarks

Policy Implication and Future ResearchPolicy Implication and Future Research

Public Policies for Fostering Entrepreneurship Public Policies for Fostering Entrepreneurship

MotivationMotivation Information and Communication Technologies (Information and Communication Technologies (ICTsICTs) have ) have

had substantial impacts on economic performance and on the had substantial impacts on economic performance and on the success of individual firms (OECD 2004)success of individual firms (OECD 2004)..

Foreign Direct Investment (Foreign Direct Investment (FDIFDI) is considered as a strategic ) is considered as a strategic action for promoting Entrepreneurship (Parker 2006).action for promoting Entrepreneurship (Parker 2006).

Economic level: the spillover effect intensifies the Economic level: the spillover effect intensifies the competition, the entrepreneurial innovation capacity, and competition, the entrepreneurial innovation capacity, and the research and development (the research and development (R&DR&D) intensity. ) intensity.

Social level: the enhancement of knowledge spillovers and Social level: the enhancement of knowledge spillovers and the reduction of social exclusion. the reduction of social exclusion.

ObjectivesObjectives

To investigate whether the To investigate whether the FDIFDI has a significant has a significant economic impact economic impact on the one of the most important on the one of the most important technological drivers: the technological drivers: the ICTsICTs..

To make a comparative analysis between two To make a comparative analysis between two

European cases: Finland and Portugal. European cases: Finland and Portugal.

To analyze the causality relationships established To analyze the causality relationships established among Business Ownership Rate (among Business Ownership Rate (BORBOR), Gross ), Gross Domestic Product (Domestic Product (GDPGDP), Unemployment (), Unemployment (UNEMPUNEMP), ), inward Foreign Direct Investment (inward Foreign Direct Investment (FDIFDI) and ) and Investment in ICTs (Investment in ICTs (IICTIICT). ).

Entrepreneurship Literature: Entrepreneurship Literature: Where do we Where do we stand?stand?

The policy-maker should be ‘interested primarily in what determines the supply of entrepreneurship and in the means that can be used to expand it’ (Baumol 1968:69).

The knowledge commercialization can be pre-empted through the knowledge filter (Audretsch & Stephan 1999; Audretsch & Lehmann, 2005).

The attraction of inward FDI plays an important role, since MNCs impact indigenous entrepreneurial activity (Acs et al. 2006).

The awareness of foreign technologies should be, actively, promoted by governments (Brezneitz 2007).

Linking Neglected Determinants: Linking Neglected Determinants: Why should we care about the feedback?Why should we care about the feedback?

ICTs: The technological catalyst that promotes economic growth through a dynamic process of creative destruction based on technological innovations (Gershuny & Miles 1983; Barras 1986, 1990; Evangelista 2000; Metcalfe & Miles 2000; Andersen et al. 2000; Devezas 2005).

FDI: The investment ‘push’ that has an highly valuable learning effect on the host economies. The networking, the new organizational methods and the business management methods are critical for realizing the entrepreneurship potential of the host economies (North 1994; Ericsson & Irandoust 2001; Backer & Sleuwaegen 2003; Aleluia & Leitão 2009).

Linking Neglected Determinants: Linking Neglected Determinants: Why should we care about the feedback?Why should we care about the feedback?

The impact of first foreign investment is, in general, positive, but the marginal impacts of additional investments appears to be negative (Barbosa & Eiriz 2007).

Limitation revealed by the authors: the weak evidence on positive effects of MNCs on entrepreneurial activity might hide a relevant impact of MNCs on industrial reorganization.

The Schumpeterian mechanism for replacing inefficient firms by other more efficient, deserves to be further explored, especially by linking the so far neglected triple-mix of ICTs, inward FDI and Entrepreneurship.

Econometric MethodologyEconometric Methodology

We consider four sequential steps: We consider four sequential steps:

(i) the selection of an initial model specification(i) the selection of an initial model specification

(ii) the study of the integration order of the variables(ii) the study of the integration order of the variables

(iii) the estimation process of the CVAR model(iii) the estimation process of the CVAR model

(iv) the dynamic analysis(iv) the dynamic analysis

ResultsResults

FINLAND 2 Years 3 Years 10 Years

(FDI, BOR) FDI - > BOR*VDC 2,42E-05 1,815 7,483

-IRF -1,56E-06 -0,0005 -0,005

BOR -> FDI*VDC 17,654 13,188 14,164

+IRF 1002,636 520,526 333,424

(IICT, GDP) IICT - > GDP*VDC 0,129 3,321 5,136

+IRF -14,345 74,739 555,212

GDP -> IICT*VDC 7,696 15,456 36,087

-IRF -1,60E+08 -5,10E+08 -4,07E+09

(FDI, UNEMP)FDI ->UNEMP*

VDC 2,081 9,326 7,241

+IRF 0,192 0,667 2,260

UNEMP -> FDIVDC 0,826 0,719 2,891

-IRF -267,294 -127,125 -775,012

(IICT, FDI)IICT -> FDI

VDC 1,858 1,710 1,461

+IRF -307,669 -79,338 433,639

FDI -> IICT*VDC 84,22 69,30 47,58

-IRF -8,85E+08 -1,41E+09 -5,00E+09

ResultsResults

PORTUGAL 2 Years 3 Years 10 Years

(IICT, UNEMP)

IICT -> UNEMPVDC 0,030 0,956 1,288

-IRF 0,010 -0,093 -1,132

UNEMP -> IICT *

VDC 13,720 9,451 16,255

+IRF 3,59E+10 4,62E+10 6,15E+10

(IICT, FDI)IICT -> FDI

VDC 0,051 0,113 1,515

+IRF 18,511 46,024 797,033

FDI -> IICT *VDC 3,042 1,966 13,087

+IRF 1,95E+10 1,65E+10 1,15E+10

Discussion and Final Remarks:Discussion and Final Remarks:ICTs’ PullICTs’ Pull

Finland:Finland:- ICTsICTs pull for additional inward pull for additional inward FDIFDI, but the former does , but the former does

not impacts, in a significant way, on the later variable. not impacts, in a significant way, on the later variable. This result reveals that investment in This result reveals that investment in ICTsICTs is a necessary is a necessary condition but they are not sufficient to improve the condition but they are not sufficient to improve the national capability for attracting national capability for attracting FDIFDI..

Portugal:Portugal:- An analogous situation is found. Although the increasing An analogous situation is found. Although the increasing

tendency observed, in terms of investment in tendency observed, in terms of investment in ICTsICTs, , starting from the 80s until the end of 90s. starting from the 80s until the end of 90s.

Discussion and Final Remarks:Discussion and Final Remarks:FDI PushFDI Push

Finland:Finland:

- FDIFDI impacts positively on the impacts positively on the UNEMPUNEMP . The impact is . The impact is significant starting from the third period.significant starting from the third period.

- FDIFDI plays an important role as determinant of domestic plays an important role as determinant of domestic entrepreneurship, since it contributes for decreasing entrepreneurship, since it contributes for decreasing values of entrepreneurial activity. This is justifiable by the values of entrepreneurial activity. This is justifiable by the dimension of firms and the high entry barriers that are dimension of firms and the high entry barriers that are associated with the dominant technological profile in associated with the dominant technological profile in high-tech activities. high-tech activities.

Discussion and Final Remarks:Discussion and Final Remarks:FDI Push (?)FDI Push (?)

Portugal:Portugal:

- FDIFDI contributes for decreasing levels of contributes for decreasing levels of UNEMPUNEMP, but , but after the initial period of the MNCs operation, the after the initial period of the MNCs operation, the efficiency pressure, the downsizing practices and the efficiency pressure, the downsizing practices and the subsequent delocalization originate increasing levels of subsequent delocalization originate increasing levels of unemployment. unemployment.

- We do not find empirical evidence for supporting the We do not find empirical evidence for supporting the thesis that thesis that FDIFDI is an effective determinant of is an effective determinant of Entrepreneurship. This is justifiable by the fact that the Entrepreneurship. This is justifiable by the fact that the metric used for Entrepreneurship, that is, the metric used for Entrepreneurship, that is, the BORBOR, is , is an exogenous variable.an exogenous variable.

Discussion and Final Remarks:Discussion and Final Remarks:BOR ► FDIBOR ► FDI

- Finland and Portugal: Finland and Portugal:

For both countries was detected that For both countries was detected that BORBOR precedes precedes inward inward FDIFDI. From here, it results that inward . From here, it results that inward FDIFDI is is fundamental to promote an entrepreneurial culture, fundamental to promote an entrepreneurial culture, because this provides a dynamic environment that will because this provides a dynamic environment that will attract foreign investors. attract foreign investors.

Discussion and Final Remarks:Discussion and Final Remarks:ICT ◄-► FDIICT ◄-► FDI

- Finland (high-tech producer): the Finland (high-tech producer): the FDIFDI has a negative has a negative and significant impact on the investment in and significant impact on the investment in ICTICT. This . This reveals the growing importance of the private sector in reveals the growing importance of the private sector in assuring the level of investment in this technological assuring the level of investment in this technological catalyst.catalyst.

- Portugal (low-tech producer): the Portugal (low-tech producer): the FDIFDI presents a presents a positive and significant impact on the positive and significant impact on the ICTICT. In the long . In the long term, the inward term, the inward FDIFDI plays an important role, especially plays an important role, especially if public policies aim to modify, in a progressive way, if public policies aim to modify, in a progressive way, the national technological profile. the national technological profile.

Future Research and Policy ImplicationFuture Research and Policy Implication Developing longitudinal studies focused on the Developing longitudinal studies focused on the

principal of entrepreneurial activity, that is, the principal of entrepreneurial activity, that is, the entrepreneur, in order to study in what extent entrepreneur, in order to study in what extent intellectual capital, social capital and intellectual capital, social capital and organizational capital really matter in linking organizational capital really matter in linking Entrepreneurship and Entrepreneurship and FDIFDI. .

Building on public policies focused on the Building on public policies focused on the creation and diffusion of ideas and products, creation and diffusion of ideas and products, and on the maintenance of an high degree of and on the maintenance of an high degree of openness to new investors, especially in openness to new investors, especially in ICTsICTs, , because they are potential drivers of new because they are potential drivers of new waves of technological change.waves of technological change.

Public Policies for Fostering Entrepreneurship: Public Policies for Fostering Entrepreneurship: A European PerspectiveA European Perspective

by Leitão & Baptista (2009), Springer, NY, USby Leitão & Baptista (2009), Springer, NY, US

Part I – Entrepreneurship Policies – A European Framework Part I – Entrepreneurship Policies – A European Framework

Part II – Entrepreneurship Policy in Countries and RegionsPart II – Entrepreneurship Policy in Countries and Regions

Public Policies for Fostering EntrepreneurshipPublic Policies for Fostering Entrepreneurship

ContributorsContributors Chap. 1 -Chap. 1 - Audretsch, Beckmann and Audretsch, Beckmann and Bönte discuss how policy programs Bönte discuss how policy programs

promoting knowledge-based start-ups may potentially foster the promoting knowledge-based start-ups may potentially foster the commercialization of knowledge and spur economic growthcommercialization of knowledge and spur economic growth..

Chap. 2 -Chap. 2 - Carree, Piergiovanni, Santarelli and Carree, Piergiovanni, Santarelli and Verheul analyze regional Verheul analyze regional policies supporting new firm formation in Italy.policies supporting new firm formation in Italy.

Chap. 3Chap. 3 -- Dagnino, Li Destri and Baglieri Dagnino, Li Destri and Baglieri explore the relationships explore the relationships between firm strategies and the design of institutional contexts on behalf between firm strategies and the design of institutional contexts on behalf of public agents.of public agents.

Chap. 4Chap. 4 -- Bosma, Schutjens and Stam review several streams of Bosma, Schutjens and Stam review several streams of literature stressing the importance of regions when it comes to literature stressing the importance of regions when it comes to investigating both causes and consequences of entrepreneurship.investigating both causes and consequences of entrepreneurship.

Chap. 5Chap. 5 -- Stam, Suddle, Hessels and van Stel Stam, Suddle, Hessels and van Stel investigate whether the investigate whether the presence of ambitious entrepreneurs is a fundamental determinant of presence of ambitious entrepreneurs is a fundamental determinant of national economic growth.national economic growth.

Public Policies for Fostering EntrepreneurshipPublic Policies for Fostering Entrepreneurship ContributorsContributors

Chap. 6 -Chap. 6 - Karlsson & Andersson address the determination of the Karlsson & Andersson address the determination of the optimal rate of entrepreneurship, fundamental market failures and risks optimal rate of entrepreneurship, fundamental market failures and risks associated with policy failures.associated with policy failures.

Chap. 7 -Chap. 7 - Raposo examines the entrepreneurship policy in Portugal. Raposo examines the entrepreneurship policy in Portugal.

Chap. 8Chap. 8 - Silva & Leitão analyze whether the entrepreneurial innovation - Silva & Leitão analyze whether the entrepreneurial innovation capacity of firms is stimulated by their external partners. capacity of firms is stimulated by their external partners.

Chap. 9Chap. 9 -- Serrasqueiro & Nunes analyze the determinant factors of the Serrasqueiro & Nunes analyze the determinant factors of the growth of Portuguese Knowledge Intensive Business Services (KIBS).growth of Portuguese Knowledge Intensive Business Services (KIBS).

Chap. 10 - Chap. 10 - Welter reviews the German support system for fostering Welter reviews the German support system for fostering entrepreneurship and SMEs , focusing on the institutional structure. entrepreneurship and SMEs , focusing on the institutional structure.

Public Policies for Fostering EntrepreneurshipPublic Policies for Fostering Entrepreneurship

ContributorsContributors

Chap. 11 - Chap. 11 - Arenius reviews the Finnish entrepreneurship policy. Arenius reviews the Finnish entrepreneurship policy.

Chap. 12 - Chap. 12 - Cowling, Murray and Bates analyze the experience of the Cowling, Murray and Bates analyze the experience of the UK government’s strategy in the area of Venture Capital (VC). UK government’s strategy in the area of Venture Capital (VC).

Chap. 13Chap. 13 -- Urbano & Toledano examine the Spanish situation, for Urbano & Toledano examine the Spanish situation, for testing the effects associated with the implementation testing the effects associated with the implementation of ENT policies.of ENT policies.

Chap. 14 - Chap. 14 - Serarols, Vaillant and Urbano, Serarols, Vaillant and Urbano, on the basis of Catalonian on the basis of Catalonian experiences, analyze the variables that influence the choice of location experiences, analyze the variables that influence the choice of location made by rural technology based made by rural technology based manufacturing firms.manufacturing firms.

Public Policies for Fostering EntrepreneurshipPublic Policies for Fostering Entrepreneurship

Challenges to be faced by policy makersChallenges to be faced by policy makers

The future spread over the whole of Europe of The future spread over the whole of Europe of less bureaucratic public policies with great less bureaucratic public policies with great impact on entrepreneurship and innovation impact on entrepreneurship and innovation activities.activities.

This is the preferred path to follow up the This is the preferred path to follow up the Schumpeterian and reformative philosophy of Schumpeterian and reformative philosophy of the Lisbon Strategy. This will accelerate the the Lisbon Strategy. This will accelerate the process of real convergence and endogenous process of real convergence and endogenous growth with growth with a regional basis.a regional basis.

Technological Determinants of Entrepreneurship: Technological Determinants of Entrepreneurship: Challenges for the European Public PoliciesChallenges for the European Public Policies

João LeitãoJoão Leitão

admubi@ubi.pt

The Future for Entrepreneurship and SME The Future for Entrepreneurship and SME Policies in European CountriesPolicies in European Countries

  

May 5th, Stockholm, SwedenMay 5th, Stockholm, Sweden

University of Beira InteriorUniversity of Beira Interior