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Innovation and entrepreneurial activity at a sub-regional level: The case of the Basque Country

Innovation and entrepreneurial activity at a sub-regional level: The case of the Basque Country. González Pernía, José Luis Martiarena Arrizabalaga, Aloña Navarro Arancegui , Mikel Peña Legazkue , Iñaki. Introduction. Business dynamics is not uniform and seems to be influenced by:

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Innovation and entrepreneurial activity at a sub-regional level: The case of the Basque Country

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  1. Innovation and entrepreneurial activity at a sub-regional level:The case of the Basque Country González Pernía, José Luis Martiarena Arrizabalaga, Aloña Navarro Arancegui, Mikel Peña Legazkue, Iñaki Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  2. Introduction • Business dynamics is not uniform and seems to be influenced by: • Industry technological environment (Agarwal,1998; Audretsch, 1991; Nelson and Winter,1978; Jovanovic, 1982): • Technological level: High-techvsLow-techsectors. • Product lifecycle: InitialvsMaturesectors. • Regional lifecycle (Audretsch et al., 2008): • EntrepreneurialvsRoutinized regions. • Literature on innovation and business dynamics is mainly based on country and regional level of analysis. However, little is known at a sub-regional level (i.e.,sub-regions are also complex and heterogeneous)(i.e. Italian industrial districts (Muscio, 2006); or Basque Country’s counties, (Navarro y Larrea, 2007; Zubiaurre et al., 2008)) Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  3. Introduction • Basque Country includes a bunddle of heterogeneous sub-regions: • socio-economicand competitivenesslevelsvaryacross sub-regions(Navarro and Larrea, 2007) • innovationcapacityisdifferent among sub-regions(Zubiaurre et al., 2008) • R.Q: Towhatextent are the innovation and entrepreneurial activitytrendsdifferentacross Basque sub-regions? Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  4. Territorial innovation patterns • Two subsystems are blended within a regional innovation system: • Sub-systems for Generation vsApplication of knowledge (Autio, 1998; Cooke, 2002) • Industry innovation processes depend on: • Analytical knowledge (science) vsSynthetic knowledge (engineering) bases (Asheim & Coenen, 2005) Innovation capital Knowledge generation and difussion • Analytical knowlege Basic research (science) Knowledge application and exploitation • Synthetic knowledge Applied research (engineering) Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  5. Territorial innovation patterns • Agglomeration economies: • Specialized industrial agglomerations (Marshall, 1920), driven by intra-industry externalities and incremental innovations. • Diversified urban agglomerations (Jacobs, 1969), driven by inter-industry externalities and radical innovations. • Regional life cycles (Audretsch et al., 2008): • Entrepreneurial regions (i.e. Urban agglomerations) • Routinized regions (i.e. Industrial agglomerations) New firms Entrepreneurial stages Intra-sectorial externalities Urban Agglo. & Diversity Industrial Agglo. & Specialization Inter-sectorialexternalities Routinized stages Incumbents Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  6. Territorial innovation patterns • Our conjecture is that new firms are more likely to develop radical innovation in entrepreneurial regions, while theyare more likely to develop incremental innovations in routinized regions . • Innovation contributes to technological change, which in turn is a fundamental source of sustained growth (Solow, 1958) TECHNOLOGICALCHANGE Radical Innovation Incremental Regional growth and competitiveness Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  7. Financial community Government Social capital Entrepreneurship facilitators Entrepreneurial capital New firms Radical Innovation Incremental TECHNOLOGICALCHANGE Inter-sectorialexternalities Innovation capital Regional competitiveness Routinized stages Knowledge generation and difussion • Analytical knowlege Urban Agglo. & Diversity Industrial Agglo. & Specialiation Entrepreneurial stages Knowledge application and exploitation • Synthetic knowledge Intra-sectorial externalities Incumbents Territorial innovation patterns • Anintegrated and comprehensiveperspective: Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  8. Data and methodology • Unit of analysis: 20 sub-regional level territories (counties) categorized by: • Innovation capital elements • Socio-economic characteristics (hierarchical cluster analysis and principal component analysis) • Descriptive analysis: groups of counties and: • Firm entryand exit rates (2003-2005) for (1) total, (2) high-employment impact ventures, (3) medium-high & high-tech ventures, and (4) new ventures with investment in R&D. • Venture survival rates (cohort 2002, existing in 2006) for (1) total and (2) medium-high & high tech ventures • Source: Regional census of establishments (DIRAE) from EUSTAT • Source: EUSTAT and Eskudal (Navarro & Larrea, 2007) Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  9. Typology of sub-regions • Geographicmap TYPE A: Metropolitan counties characterized by diversified economic activities TYPE B: Non metropolitan counties characterized by advanced manufacturing industry TYPE C: Others non mentropolitan counties Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  10. Typology of Basque sub-regions • Profile of sub-regions (clusteranalysisresults) Sub-regions: Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  11. Characteristics of Basque sub-regions(factor analysis results: 2 factor groups) • Knowledge base and GDP per capita by sub-regions: Sub-regions: Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  12. Basque sub-regions and firm entry rate Sub-regions: * Figures for firms instead of establishments, during the period 2002-204 • Countiestype A show thehighesttotal and mid-high & hightechfirmentryrates. • Countiestype Bhavethehighestentryratesforhighemploymentimpactventuresand forventureswithinvestment in R&D. • Countiestype C show moderatefirmentryrates. Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  13. Basque sub-regions and firm exit rate Sub-regions: • Counties type A show the highest total exit rate, but their total net entry rates is also high. • Counties type B exhibit the lowest mid-high & high tech entry rates, but their net entry rates is also the lowest for both mid-high & high tech and total establishments. • Exit rates in counties type C are an average of those in counties type A and B. However, they show the highest total net entry rates. Net entry rate Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  14. Basque sub-regions and firm survival rates Sub-regions: * Figures for firms instead of establishments • Countiestype A provide a favourableenvironmentforhighemploymentimpactventuresurvival. • Countiestype B provide a favourableenvironmentforventuresurvival of general (R&D and non-R&D ventures). • Surprinsingly, countiestype Cprovide a favourableenvironmentforsurvival of mid-high & hightechventures. Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

  15. Conclusions • Threetypes of sub-regionswith quite distinctinnovation and entrepreneurialactivitypatterns. Thetwosalientones: • Metropolitancountiesare urbanconcentrationsdrivenbyentrepreneurialregimes , focussedonknowledgegeneration. • High total entry and exitrates. But, lowentryratesfor R&D and highemploymentimpact new ventures. • Moderatesurvivalrates ( “revolvingdoor”-likemechanism in place?) • Non metropolitancharacterizedbyadvancedmanufacturingindustry are industrial concentrationsdrivenbyroutinizedregimesfocussedonknowledgeapplication. • Low total entry and exitrates. But, highentryratesfor R&D and highemploymentimpact new ventures. • Highsizeentry and, accordingly, highsurvivalrates

  16. Conclusions • Limitations: • Counties as unit of analysis (municipalities? would add more variation) • Study based on descriptive analysis (causality is not examined!) • Results restricted to a case study with a particular context (the Basque Country) • Policy implications: Regional policies aimed at promoting innovation and entrepreneurial activity should target sub-regions, rather than regions as a whole, and build up a balanced relationship among these sub-regions. • Future research: To dissentangle an apparent endogenous relationship between innovation capital and entrepreneurial activity. Simposium on Business Dynamics and Innovation Barcelona, October 8, 2008

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