Entrepreneurship, Agglomeration and Economic Growth

Bangalore India, London UK and Baden Würtenberg Germany. It is further recognized ... Third, we use a new and novel data set from the Global Entrepreneurship Monitor. (GEM) project to ...... Polanyi M 1967 The Tacit Dimension. Doubleday ...
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Discussion Papers on Entrepreneurship, Growth and Public Policy

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Entrepreneurship, Agglomeration and Technological Change by Zoltan J. Acs Max-Plank-Institute for Research into Economic Systems and University of Baltimore Attila Varga University of Pécs Number of Pages: 27

The Papers on Entrepreneurship, Growth and Public Policy are edited by the Group Entrepreneurship, Growth and Public Policy, MPI Jena. For editorial correspondence, please contact: [email protected] ISSN 1613-8333 © by the author

Max Planck Institute for Research into Economic Systems Group Entrepreneurship, Growth and Public Policy Kahlaische Str. 10 07745 Jena, Germany Fax: ++49-3641-686710

Discussion Papers on Entrepreneurship, Growth and Public Policy

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Entrepreneurship, Agglomeration and Technological Change Zoltan J. Acs Max-Plank-Institute for Research into Economic Systems Jena, Germany And University of Baltimore Baltimore, MD 21201, USA Tel: (1) 410-837-5012 E-mail: [email protected] and

Attila Varga University of Pécs Pécs, Rákóczi 80, H-7622, Hungary Tel: (36) 72- 501-599/3149 E-mail: [email protected]

March 2004

Abstract: Technological change is a central element in macroeconomic growth explanation. Endogenous growth models take a revolutionary step towards better understanding the economic growth process by deriving technological change from profit-motivated individual behavior. In endogenous growth theory knowledge spillovers play a fundamental role in the determination of the rate of technological progress. As such the efficiency of transmitting knowledge into economic applications is a crucial factor in explaining macroeconomic growth. Endogenous growth models take this factor exogenous. We argue that variations across countries in entrepreneurship and the spatial structure of economic activities could potentially be the source of different efficiencies in knowledge spillovers and ultimately in economic growth. We develop an empirical model to test both the entrepreneurship and the geography effects on knowledge spillovers. To date the only international data that are collected on the basis of exactly the same principles in each country are the Global Entrepreneurship Monitor (GEM) data. We use the 2001 GEM cross-country data to measure the level of entrepreneurship in each particular economy. For this purpose we apply the TEA index developed within the framework of the GEM project and calculated for each country participating in this international research. Additionally, data on employment, production, patent applications, public and private R&D expenditures originating from different international and national sources are applied in the paper.

To be presented at the first GEMS Research Conference: Entrepreneurship, Government Policy and Economic Growth 1-2 April 2003 Berlin, Germany

Discussion Papers on Entrepreneurship, Growth and Public Policy

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Introduction

The story of the entrepreneurial process often told in the literature is one of the entrepreneur recognizing and acting on an unexploited opportunity. This opportunity frequently, but not always, exists in a crowded space of research universities, networks and venture capitalists. This so called Silicon Valley story has been told in the context of other high technology agglomerations including Seattle WA, Austin TE, Boston MA, and Washington D.C. It also has its international counter parts in Bangalore India, London UK and Baden Würtenberg Germany. It is further recognized that the entrepreneurial process should lead to economic growth with the creation of successful growing companies like Microsoft, Intel and Sun Microsystems among others. While there is some evidence that entrepreneurship and agglomerations play a role in economic growth this has not been worked out theoretically (Bresnahan, Gambardella and Saxenian, 2001). Paul Romer has developed