Abstract
What happens to firm-level research and development (R&D) when urban locations have more knowledge spillovers and are more entrepreneurial? This article explores the potential tension between knowledge spillovers, start-ups and innovation effort in existing firms. The relationship is empirically tested using Swedish firm-level data and municipality-level data on start-ups. The results indicate that having more start-ups in urban municipalities is associated with lower firm-level R&D expenditure. However, this relationship is not linear, where the negative association between the level of new firm formation and firm-level R&D expenditure decreases with scale. This suggests that the relationship between local entrepreneurship and a business’ R&D decisions is conditioned by the extent of that entrepreneurship.
Highlights
It is widely accepted that entrepreneurship is an important driver of economic development (Acs et al, 2012; Fritsch and Mueller, 2004; Stuetzer et al, 2018; Urbano et al, 2019)
In these results there is no support for our first hypothesis, as, other things equal, the level of firm research and development (R&D) expenditure is insignificantly related to potential knowledge spillovers from co-located firms
We do find support for our second hypothesis, as R&D expenditure is negatively associated with the number of start-ups in the same municipality
Summary
It is widely accepted that entrepreneurship is an important driver of economic development (Acs et al, 2012; Fritsch and Mueller, 2004; Stuetzer et al, 2018; Urbano et al, 2019). The analysis here estimates whether business innovation effort is related to potential knowledge spillovers and the general level of entrepreneurial new business start-ups in the municipality in which it is located.
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