When Does Entrepreneurship Contribute to Productivity Growth?

Abstract

We examine the role of incumbent corporations in the contribution of entrepreneurship to national productivity growth. We insist that entrepreneurship contributes to national productivity growth better in countries where corporations actively employ organization and management practices conducive to collaborating with entrepreneurs (“ high experiment capacity ”) because high experiment capacity lowers the access costs of entrepreneurs to the resources and value chains of incumbent corporations. Using panel data of 73 countries over 13 year period from multiple international databases, we estimate the effect of experiment capacity on the relationship between entrepreneurship and productivity growth. Our data support the hypothesis: The increase in experiment capacity score by one standard deviation is associated with the increase of productivity growth by 0.037 percentage point. The magnitude is comparable to one standard deviation of the distribution of productivity growth rate. We also find that incumbent corporations with high experiment capacity are more important for entrepreneurs who entered in the previous year relative to those who just entered. The organization and management practices of incumbent corporations are under-appreciated factors for effective entrepreneurial policies.