The role of entrepreneurial absorptive capacity for knowledge spillover entrepreneurship

The Knowledge Spillover Theory of Entrepreneurship (KSTE) assumes a positive effect of a country's knowledge stock on entrepreneurial activity; however, empirical support for this relationship is largely contradictory. While some studies confirm the positive relationship between knowledge stock and entrepreneurial activity, others find a negative relationship or no relationship at all. We use multivariate ordinary least squares regression on a sample of 58 countries over the period from 2007 to 2012 to test the KSTE across countries. We reconcile the apparent paradox in the KSTE literature and show that the effect of knowledge stock on entrepreneurial activity is contingent upon a country's entrepreneurial absorptive capacity. While the effect is positive for countries with high levels of entrepreneurial absorptive capacity, the effect is negative for countries with low levels of entrepreneurial absorptive capacity. Our results demonstrate that a high level of entrepreneurial absorptive capacity is a boundary condition for the KSTE to hold at the country level. We further show that policymakers should not solely focus on encouraging and facilitating knowledge generation to increase entrepreneurial activity but also on elevating their country's entrepreneurial absorptive capacity to create an environment that is conducive to knowledge-based entrepreneurial activity. Plain English Summary The relationship between knowledge stock and entrepreneurship is dependent upon entrepreneurial absorptive capacity. Knowledge that is created by incumbent organizations can spill over to local entrepreneurs. The extent of these knowledge spillover effects may depend on the absorptive capacity of entrepreneurs that is the ability of entrepreneurs to understand knowledge. Our analysis reveals that the relationship between knowledge and entrepreneurship is not uniformly positive but dependent upon a country's entrepreneurial absorptive capacity. Whereas the relationship is positive for countries with high levels of entrepreneurial absorptive capacity, the relationship is negative for countries with low levels of entrepreneurial absorptive capacity. Our study has implications for policymakers who seek to encourage entrepreneurship within their country by increasing the level of entrepreneurial absorptive capacity.