Technological Determinants of Entrepreneurship: Challenges for the European Public Policies

1. TheFuture for Entrepreneurshipand SME Policies inEuropeanCountries Technological Determinants of Entrepreneurship: Challenges for the European Public Policies João Leitão Universityof Beira Interior May 5th, Stockholm, Sweden

2. Outline • Motivation • Objectives • Entrepreneurship Literature • Linking Neglected Determinants • Econometric Methodology • Results • Discussion and Final Remarks • Policy Implication and Future Research • Public Policies for Fostering Entrepreneurship

3. Motivation • Information and Communication Technologies (ICTs) have had substantial impacts on economic performance and on the success of individual firms (OECD 2004). • Foreign Direct Investment (FDI) is considered as a strategic action for promoting Entrepreneurship (Parker 2006). • Economic level: the spillover effect intensifies the competition, the entrepreneurial innovation capacity, and the research and development (R&D) intensity. • Social level: the enhancement of knowledge spillovers and the reduction of social exclusion.

4. Objectives • To investigate whether the FDI has a significant economic impact on the one of the most important technological drivers: the ICTs. • To make a comparative analysis between two European cases: Finland and Portugal. • To analyze the causality relationships established among Business Ownership Rate (BOR), Gross Domestic Product (GDP), Unemployment (UNEMP), inward Foreign Direct Investment (FDI) and Investment in ICTs (IICT).

5. Entrepreneurship Literature: Where do we 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).

6. Linking Neglected Determinants: 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).

7. Linking Neglected Determinants: 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.

8. Econometric Methodology • We consider four sequential steps: (i) the selection of an initial model specification (ii) the study of the integration order of the variables (iii) the estimation process of the CVAR model (iv) the dynamic analysis

9. Results

10. Results

11. Discussion and Final Remarks:ICTs’ Pull • Finland: • ICTs pull for additional inward FDI, but the former does not impacts, in a significant way, on the later variable. This result reveals that investment in ICTs is a necessary condition but they are not sufficient to improve the national capability for attracting FDI. • Portugal: • An analogous situation is found. Although the increasing tendency observed, in terms of investment in ICTs, starting from the 80s until the end of 90s.

12. Discussion and Final Remarks:FDI Push • Finland: • FDI impacts positively on the UNEMP . The impact is significant starting from the third period. • FDI plays an important role as determinant of domestic entrepreneurship, since it contributes for decreasing values of entrepreneurial activity. This is justifiable by the dimension of firms and the high entry barriers that are associated with the dominant technological profile in high-tech activities.

13. Discussion and Final Remarks:FDI Push (?) • Portugal: • FDI contributes for decreasing levels of UNEMP, but after the initial period of the MNCs operation, the efficiency pressure, the downsizing practices and the subsequent delocalization originate increasing levels of unemployment. • We do not find empirical evidence for supporting the thesis that FDI is an effective determinant of Entrepreneurship. This is justifiable by the fact that the metric used for Entrepreneurship, that is, the BOR, is an exogenous variable.

14. Discussion and Final Remarks:BOR ► FDI • Finland and Portugal: For both countries was detected that BOR precedes inward FDI. From here, it results that inward FDI is fundamental to promote an entrepreneurial culture, because this provides a dynamic environment that will attract foreign investors.

15. Discussion and Final Remarks:ICT ◄-► FDI • Finland (high-tech producer): the FDI has a negative and significant impact on the investment in ICT. This reveals the growing importance of the private sector in assuring the level of investment in this technological catalyst. • Portugal (low-tech producer): the FDI presents a positive and significant impact on the ICT. In the long term, the inward FDI plays an important role, especially if public policies aim to modify, in a progressive way, the national technological profile.

16. Future Research and Policy Implication • Developing longitudinal studies focused on the principal of entrepreneurial activity, that is, the entrepreneur, in order to study in what extent intellectual capital, social capital and organizational capital really matter in linking Entrepreneurship and FDI. • Building on public policies focused on the creation and diffusion of ideas and products, and on the maintenance of an high degree of openness to new investors, especially in ICTs, because they are potential drivers of new waves of technological change.

17. Public Policies for Fostering Entrepreneurship: A European Perspectiveby Leitão & Baptista (2009), Springer, NY, US Part I – Entrepreneurship Policies – A European Framework Part II – Entrepreneurship Policy in Countries and Regions

18. Public Policies for Fostering Entrepreneurship • Contributors • Chap. 1 -Audretsch, BeckmannandBönte discuss how policy programs promoting knowledge-based start-ups may potentially foster the commercialization of knowledge and spur economic growth. • Chap. 2 -Carree, Piergiovanni, Santarelli and Verheul analyze regional policies supporting new firm formation in Italy. • Chap. 3- Dagnino, Li Destri and Baglieri explore the relationships between firm strategies and the design of institutional contexts on behalf of public agents. • Chap. 4-Bosma, Schutjens and Stam review several streams of literature stressing the importance of regions when it comes to investigating both causes and consequences of entrepreneurship. • Chap. 5-Stam, Suddle, Hessels and van Stel investigate whether the presence of ambitious entrepreneurs is a fundamental determinant of national economic growth.

19. Public Policies for Fostering Entrepreneurship • Contributors • Chap. 6 -Karlsson & Andersson address the determination of the optimal rate of entrepreneurship, fundamental market failures and risks associated with policy failures. • Chap. 7 -Raposo examines the entrepreneurship policy in Portugal. • Chap. 8 - Silva & Leitão analyze whether the entrepreneurial innovation capacity of firms is stimulated by their external partners. • Chap. 9-Serrasqueiro & Nunes analyze the determinant factors of the growth of Portuguese Knowledge Intensive Business Services (KIBS). • Chap. 10 - Welter reviews the German support system for fostering entrepreneurship and SMEs , focusing on the institutional structure.

20. Public Policies for Fostering Entrepreneurship • Contributors • Chap. 11 - Arenius reviews the Finnish entrepreneurship policy. • Chap. 12 - Cowling, Murray and Bates analyze the experience of the UK government’s strategy in the area of Venture Capital (VC). • Chap. 13-Urbano & Toledano examine the Spanish situation, for testing the effects associated with the implementation of ENT policies. • Chap. 14 - Serarols, Vaillantand Urbano, on the basis of Catalonian experiences, analyze the variables that influence the choice of location made by rural technology based manufacturingfirms.

21. Public Policies for Fostering Entrepreneurship • Challenges to be faced by policy makers • The future spread over the whole of Europe of less bureaucratic public policies with great impact on entrepreneurship and innovation activities. • This is the preferred path to follow up the Schumpeterian and reformative philosophy of the Lisbon Strategy. This will accelerate the process of real convergence and endogenous growth with a regional basis.

22. TheFuture for Entrepreneurshipand SME Policies inEuropeanCountries Technological Determinants of Entrepreneurship: Challenges for the European Public Policies João Leitão admubi@ubi.pt Universityof Beira Interior May 5th, Stockholm, Sweden