Abstract
Prior studies have documented that Venture Capital (VC) boosts innovation in certain countries. But the literature has generally been restricted to firm and industry level. Little research effort has been devoted to investigate the long-run impact of VC on national innovation performance. This study explores European VC’s impact on innovation with a panel of 30 European countries over the period 1980-2009. We measure innovation performance with two indicators—the growth in the number of patent application and of the Total Factor Productivity (TFP). We find that in Western Europe, there is a positive long-run multiplier effect of VC on TFP growth. Both early and later stage VC investment tends to have no impact on the growth of patent applications. Early stage VC investment, however, has a negative impact on short-term TFP growth. In Eastern Europe, VC investment seems likely to boost innovation growth in the short-term but to damage innovation performance in the long-run. We discuss our findings with multiple theories and provide policy implications.
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