Entrepreneurship Capital and Technical Efficiency: The Role of New Business/Firms as a Conduit of Knowledge Spillovers

Increasingly, entrepreneurship is being discussed and considered as a source of high economic growth and competitiveness. Agarwal, Audretsch and Sarkar (2010), questioning the underlying assumptions in the traditional framework of the process of creative destruction, provide an alternative conceptual process of creative construction that characterizes the dynamics between entrants and incumbents. Conceptually, this new framework of creative construction can prove quite useful to analyze the impact of countries' entrepreneurship capital on economic performance and can be a guide for economic policy. Audretsch and Keilbach (2003), argue that entrepreneurship capital promotes economic performance by serving as a conduit of knowledge spillovers. A Stochastic Frontier Analysis (SFA) approach is applied here to test this hypothesis. In addition, kernel density functions are employed to analyze convergence (or divergence) in the efficiency estimated for individual countries. The empirical evidence and results here tend to support the Audretsch and Keilbach hypothesis. Specifically, the empirical analysis shows that the rate of expenses on R&D in relation to New Businesses Registered (NBR) has a positive and significant effect in increasing technical efficiency. These factors facilitate the dissemination of existing knowledge, develop entrepreneurship capital, and thus provide the missing link to economic performance-entrepreneurship capital. We also show the trends and dynamics of changes in countries technical efficiency. Policy implications from these findings are presented.