ENTREPRENEURSHIP CAPITAL AND REGIONAL PRODUCTIVITY REVISITED

Government intervention to foster entrepreneurship has been justified by the positive spillovers that regional entrepreneurship capital could have on firms' productivity. The available evidence shows a positive relationship between entrepreneurship capital measures and regional production. This paper argues that this evidence could be explained not only by said spillovers but also by the presence of decreasing returns to scale in firms' production technology. The paper provides a simple methodological benchmark for distinguishing between and measuring the two effects. The analysis conducted using a sample of 52 Spanish provinces over 11 years confirms the presence of decreasing returns to scale. Therefore, the previous literature could have overestimated the spillovers of regional entrepreneurship capital on firms' production.