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How do business startup modes affect economic growth?

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  • Colin Davis
  • Laixun Zhao

Abstract

This paper examines researchers choices between either collaborating with venture capitalists or going independent when investing in research (e.g., labs, scientists, equipment, perishable materials, etc.) and how their interaction affects long-run growth in an economy characterized by incomplete contracts and financial market imperfections. We find that venture capital is more likely to be selected by entrepreneurs when startup risks are median to high. A ranking of the welfares associated with each startup mode under different legal and financial environments shows that economic policy and research incentives may not always align as entrepreneurs may not select the mode that provides the highest welfare level.

Suggested Citation

  • Colin Davis & Laixun Zhao, 2019. "How do business startup modes affect economic growth?," Canadian Journal of Economics, Canadian Economics Association, vol. 52(4), pages 1755-1781, November.
    • Handle: RePEc:cje:issued:v:52:y:2019:i:4:p:1755-1781
    DOI: 10.1111/caje.12417
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    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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