The knowledge spillover theory of entrepreneurship

Contemporary theories of entrepreneurship generally focus on the recognition of opportunities and the decision to exploit them. Although the entrepreneurship literature treats opportunities as exogenous, the prevailing theory of economic growth suggests they are endogenous. This paper advances the microeconomic foundations of endogenous growth theory by developing a knowledge spillover theory of entrepreneurship. Knowledge created endogenously results in knowledge spillovers, which allow entrepreneurs to identify and exploit opportunities.

The knowledge spillover theory of entrepreneurship

According to the knowledge spillover theory of entrepreneurship, the context in which decision-making is derived can influence one’s determination to become an entrepreneur. In particular, a context that is rich in knowledge generates entrepreneurial opportunities from those ideas. By commercializing ideas that evolved from an incumbent organization via the creation of a new firm, the entrepreneur (human capital) not only serves as a conduit for the spillover of knowledge, but also for the ensuing innovative activity and enhanced economic performance through resource allocation. The knowledge spillover theory of entrepreneurship brings together contemporary theories and thoughts of entrepreneurship with prevailing theories of economic growth, geography, and strategy and therefore explains not just why some people choose to become an entrepreneur, but also why this matters significantly for the economy and society.     

Localized competition in the knowledge spillover theory of entrepreneurship

The knowledge spillover theory of entrepreneurship predicts that the relationship between new knowledge and entrepreneurial activity depends on the commercialization efficiency of incumbents. We extend the theory to contend that localized competition impedes entrepreneurial activity by reducing the incentive to exploit new knowledge, and we test this conjecture using spatial panel estimation. We find a positive relationship between new knowledge and entrepreneurial activity, which is negatively moderated by localized competition. We also find that greater agglomeration counteracts the moderating effect localized competition has on the relationship between new knowledge and entrepreneurial activity.     

The missing pillar: the creativity theory of knowledge spillover entrepreneurship

Knowledge spillover theory of entrepreneurship and the prevailing theory of economic growth treat opportunities as endogenous and generally focus on opportunity recognition by entrepreneurs. New knowledge created endogenously results in knowledge spillovers enabling inventors and entrepreneurs to commercialize it. This article discusses that knowledge spillover entrepreneurship depends not only on ordinary human capital, but more importantly also on creativity embodied in creative individuals and diverse urban environments that attract creative classes. This might result in self-selection of creative individuals into entrepreneurship or enable entrepreneurs to recognize creativity and commercialize it. This creativity theory of knowledge spillover entrepreneurship is tested utilizing data on European cities.     

Knowledge spillover entrepreneurship in an endogenous growth model

We present a model that separates entrepreneurship from profit-motivated corporate R&D aimed at improving existing production processes. Our model embeds the core idea of the knowledge spillover theory of entrepreneurship in established knowledge-based growth models by enriching their knowledge spillover structure. Introducing knowledge spillovers drives a wedge between the optimal and market allocation of resources between new knowledge creation and commercialization. We show the first best allocation depends exclusively on the relative strength of knowledge spillovers between them and derive propositions to guide policy that can bring the market equilibrium closer to this optimum.     

Bibliometric analysis of absorptive capacity

This study contributes to our understanding of absorptive capacity (AC) by reviewing AC articles systematically using two types of blibliometric co-citation analysis – bibliometric co-citation and bibliometric cartography – for the last 25 years. In total, we analyzed 336 articles (using HistCite) and 2088 articles (using VOSviewer), respectively, finding five research streams in AC: (1) intra-organizational learning; (2) inter-organizational learning; (3) knowledge transfer; (4) dynamic capability; and (5) micro-foundations. This integrative literature review of AC adds to the categorization of the literature, links the international business research to AC, and provides promising future research directions. Our study gives detailed information about the development of each research stream by measuring the number of publications in each stream over 25 years using bibliometric cartography analysis. Based on the literature, we propose 26 future research questions for these five research streams.     

Non-R&D SMEs: external knowledge,absorptive capacity and product innovation

The relationship between external knowledge, absorptive capacity (AC) and innovative performance for small and medium-sized enterprises (SMEs) is investigated empirically. Using data from a survey on firms located in North Norway, we ask whether AC plays a mediating role between different external knowledge inflows and innovative performance. The results are consistent with AC as an important mediator for transforming external knowledge inflows into higher innovative performance if we include all SMEs in the sample. However, this result is not robust when considering the sub-sample of non-R&D SMEs only. External knowledge inflows have a much stronger direct effect on innovation performance for non-R&D firms and leave a weak mediating effect of AC. Our findings suggest that measures of AC should be developed further in order to make AC a more relevant concept for empirical studies of SMEs without in-house R&D.     

A theory of serial entrepreneurship

The contribution of serial entrepreneurs to entrepreneurial activity is significant: in Europe, 18–30% of entrepreneurs are serial; in the US, their contribution is about one-eighth. Yet, theories of entrepreneurship and industry dynamics presume that all firms are launched by novice entrepreneurs and firm failure is synonymous with exit from entrepreneurship. We propose a theory of serial entrepreneurship in which an entrepreneur has three occupational choices: maintain his business in operation, shut it down to enter the labor market to earn an exogenous wage, or shut it down to launch a new venture while incurring a serial startup cost. In equilibrium, a high-skill entrepreneur shuts down a business of low quality to become a serial entrepreneur, launching and subsequently closing firms until a high quality business is found; a low-skill entrepreneur shuts down a business of low quality to enter the labor market, never to become a serial entrepreneur. A decrease in the wage or serial startup cost, or an increase in the startup capital, enhances the contribution of serial entrepreneurs to entrepreneurial activity and promotes new firm formation (by increasing entrepreneurship and the number of new firms that survive), but its effect on the exit rate of new firms is ambiguous. We show the model is consistent with evidence relating to the impact of an entrepreneur’s characteristics and prior experience in entrepreneurship on the survival of his firm and his entry into and survival in entrepreneurship.     

Technological variables and absorptive capacity's influence on performance through corporate entrepreneurship

Technology and corporate entrepreneurship constitute an important source of competitive advantage for organizations, as they enable the development and exploitation of new opportunities. This study proposes a model to analyze the effects of top management support for technology on the promotion of technological skills, absorptive capacity, and technological distinctive competencies. The research also considers the impact of technological skills and absorptive capacity on the development of technological distinctive competencies, analyzing the influence of these variables on organizational performance through corporate entrepreneurship. The study tests these relationships empirically using 160 European technology firms. The paper ends with discussion of the findings and provides several theoretical and practical implications for future research.     

Parkinson’s Law and absorptive capacity

Parkinson’s Law, or the principle that work expands to fill the time available for its completion and that the number of subordinates multiply at a fixed rate regardless of the amount of work produced was postulated by Professor Parkinson as a satire as well as a serious social comment on the development and growth of bureaucracy. Over the years it has come to be used as a shorthand expression for the inefficiency and mindless expansion of officialdom.¹ Absorptive capacity, on the other hand, is defined as the amount of capital which a country can utilise productively in the short run. This article analyses the relationship of these two concepts in the context of development aid.     

Patents, knowledge spillovers, and entrepreneurship

We develop an endogenous-growth model in which we distinguish between inventors and innovators. This distinction implies that stronger protection of intellectual property rights has an inverted U-shaped effect on economic growth. Intellectual property rights protection attributes part of the rents of commercial exploitation to the inventor that would otherwise accrue to the entrepreneur. Stronger patent protection will therefore increase the incentive to do research and development (R&D) and generate new knowledge. This new knowledge has a positive effect on entrepreneurship, innovation, and growth. However, after some point, further strengthening of patent protection will reduce the returns to entrepreneurship sufficiently to reduce the overall growth rate.     

Productive and harmful entrepreneurship in a knowledge economy

This paper develops an endogenous growth model with productive entrepreneurial activities and rent-seeking. Our purpose is to link contributions to the entrepreneurial and the endogenous growth literature. We deal with complementarity between productive entrepreneurship and harmful rent-seeking activities leading to potentially multiple equilibra in the economy. The degree of rent-seeking is endogenous in our model and is influenced by the economy’s legal and institutional framework as well as capital market imperfections. Policy which establishes the legal environment and financial institutions dealing with capital market imperfections together decides which of the potentially multiple equilibria is chosen by the economy. This institutional choice implies the solution to a trade-off between high economic growth on the one and a high level of productivity on the other hand.     

Corporate profit,entrepreneurship theory and business ethics

Economic profit is produced by entrepreneurs, those special individuals able to detect and seize as yet unexploited market opportunities. Many large capitalist firms manage to deliver positive profits even in the most competitive environments. They can do so, thanks to internal entrepreneurs, a subset of their employees able to drive change and develop innovation in the workplace. This paper argues that the goal of increasing economic profit is fully consistent with the corporation doing good for society. However, there is little justification for corporations to transfer the whole economic profit to shareholders. Economic agents entitled to receive the economic profit are precisely those who create this profit, namely the internal entrepreneurs.     

Knowledge absorptive capacity: New insights for its conceptualization and measurement

The processes for absorbing external knowledge become an essential element for innovation in firms and in adapting to changes in the competitive environment. Despite the huge growth in the absorptive capacity literature, a methodological gap still remains about a certain ambiguity in the definition of the construct specifying its theoretical domain and dimensionalization, and a lack of validation of the construct in most studies. The aim of this paper is to contribute to the literature on absorptive capacity through the creation and validation of two scales, justified with a thorough analysis of the literature, to measure the key components of the absorptive capacity construct: potential and realized absorptive capacities. The study includes confirmatory factor analysis on a sample of 952 Spanish firms to verify that the scales meet the psychometric properties the literature requires. The study results confirm the validity of the proposed scales and support their consolidation as a commonly used instrument with which to measure absorptive capacity.     

Formal entrepreneurship theory in economics: Existence and bounds

Theoretical analysis often can penetrate difficult economic problems in circumstances where common sense is an unreliable guide to decision making. This paper provides some new theoretical problems related to entrepreneurial decisions and behavior. For example, it investigates the optimal timing of the introduction of an innovation. Typically, in practice, innovation is a continuous process. The longer the delay in the transfer of a new product from the R&D facilities to manufacturing and marketing, the more the product is likely to be improved.But that delay also gives competitors an enhanced opportunity to get there first. This paper shows how this trade-off can be analyzed systematically, and yields some surprising results about the optimal decision on the timing of the introduction of the new product.     

Using narrative sequence methods to advance international entrepreneurship theory

Narrative sequence methods offer the potential to advance research methods and develop a common vocabulary for theory development in international entrepreneurship. While variables-focused, variance-based methods currently dominate theory development, they are atemporal, yet entrepreneurship is what entrepreneurs do over time. We examine the assumptions of variance-based approaches and compare them to those of narrative methods, which leads to a discussion of the nature of causal mechanisms. We then illustrate the use of narrative sequence methods to identify some of the mechanisms underlying the internationalisation of an intermediary in the electronic component industry, where internationalisation is interpreted as a form of innovation and entrepreneurship. We illustrate how these methods, whose value is being increasingly recognised, allow us to introduce time, timing and temporal processes into the systematic analysis of business behaviour and evolution, and to generate usable knowledge for managers and policymakers.     

The missing link: knowledge diffusion and entrepreneurship in endogenous growth

The intellectual breakthrough contributed by the new growth theory was the recognition that investments in knowledge and human capital endogenously generate economic growth through the spillover of knowledge. However, endogenous growth theory does not explain how or why spillovers occur. This paper presents a model that shows how growth depends on knowledge accumulation and its diffusion through both incumbents and entrepreneurial activities. We claim that entrepreneurs are one missing link in converting knowledge into economically relevant knowledge. Implementing different regression techniques for the Organisation for Economic Co-operation and Development (OECD) countries during 1981 to 2002 provides surprisingly robust evidence that primarily entrepreneurs contributed to growth and that the importance of entrepreneurs increased in the 1990s. A Granger test confirms that causality goes in the direction from entrepreneurs to growth. The results indicate that policies facilitating entrepreneurship are an important tool to enhance knowledge diffusion and promote economic growth.     

A note on export-platform Foreign Direct Investment,training and absorptive capacity

The empirical literature on FDI suggests that investment in training is the major source of human resource development activities undertaken by MNEs, particularly those with sophisticated technologies, and host countries' absorptive capacity plays an important role in attracting FDI. We develop a model of export-platform FDI that provides theoretical rationalisation of the role played by a host country's absorptive capacity in determining MNEs' location decisions as well as their level of investment and training–and, through this, the extent to which they contribute to human capital formation in the host country.     

Organizational rejuvenation for knowledge exploitation: Exploring corporate entrepreneurship in an MNE

The purpose of this paper is to study how organizational rejuvenation is used to increase and support knowledge exploitation in multinational enterprises. Using case-study data to explore the theoretical arguments, interesting findings emerge. The main finding is that entrepreneurial activities in IT industry enable organizational rejuvenation with repercussions beyond the focal function. Other findings relate to how corporate entrepreneurship activities provide possibilities for continuous knowledge exploitation within the MNE and how entrepreneurial groups inside MNEs form the foundation from which the organizational rejuvenation originates. Finally, the form of organizational rejuvenation studied embraced both structural and behavioral changes. The authors acknowledge an equal share in the development of this article.