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The Economic Impact of Venture Capital

  • Romain, Astrid
  • Pottelsberghe de la Potterie, Bruno van

The objective of this paper is to perform a first evaluation of the macroeconomic impact of venture capital (VC). The main assumption is that VC can be considered as being similar to business R&D performed by large firms. It can therefore contribute to economic growth through two main channels. The first one is innovation, characterized by the introduction of new products, processes or services on the market that directly contribute to improve economic performances. The second one is the development of an absorptive capability. These hypotheses are tested quantitatively with a production function model. The estimates are run over a panel data set of 16 OECD countries from 1990 to 1998. The results show that the accumulation of VC is a significant factor contributing directly to Multi-Factor Productivity (MFP) growth. The social rate of return to VC is twice as high as the social rate of return to business or public R&D. VC has also an indirect impact on MFP in the sense that it improves the output elasticity of R&D. An increased VC intensity makes it easier to absorb the knowledge generated by the universities and firms, and therefore improves aggregate economic performance.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/15960/1/070iirWP03-20.pdf
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Paper provided by Institute of Innovation Research, Hitotsubashi University in its series IIR Working Paper with number 03-20.

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Length: 18 p.
Date of creation: Sep 2003
Date of revision:
Handle: RePEc:hit:iirwps:03-20
Contact details of provider: Postal: 2-1 Naka, Kunitachi City, Tokyo 186-8601
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  1. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
  2. Rachel Griffith & Stephen Redding & John Van Reenen, 2001. "R&D and absorptive capacity: from theory to data," IFS Working Papers W01/03, Institute for Fiscal Studies.
  3. Romain, Astrid & Pottelsberghe de la Potterie, Bruno van, 2003. "The Determinants of Venture Capital: A Panel Data Analysis of 16 OECD Countries," IIR Working Paper 03-25, Institute of Innovation Research, Hitotsubashi University.
  4. Max Keilbach & Dirk Engel, . "Firm Level Implications of Early Stage Venture Capital Investment - An Empiri cal Investigation," Papers on Entrepreneurship, Growth and Public Policy 2005-22, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  5. Bruno Van Pottelsberghe & Dominique Guellec, 2001. "R&D and productivity growth: a panel data analysis of 16 OECD countries," ULB Institutional Repository 2013/6219, ULB -- Universite Libre de Bruxelles.
  6. Sapienza, Harry J., 1992. "When do venture capitalists add value?," Journal of Business Venturing, Elsevier, vol. 7(1), pages 9-27, January.
  7. David Audretsch & Max Keilbach, 2004. "Entrepreneurship Capital and Economic Performance," Regional Studies, Taylor & Francis Journals, vol. 38(8), pages 949-959.
  8. Hellmann, Thomas F. & Puri, Manju, 2000. "Venture Capital and the Professionalization of Start-up Firms: Empirical Evidence," Research Papers 1661, Stanford University, Graduate School of Business.
  9. Bruno Van Pottelsberghe De La Potterie & Frank Lichtenberg, 2001. "Does Foreign Direct Investment Transfer Technology Across Borders?," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 490-497, August.
  10. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  11. Samuel Kortum & Josh Lerner, 2000. "Assessing the Contribution of Venture Capital to Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 674-692, Winter.
  12. Samuel Kortum & Josh Lerner, 1998. "Does Venture Capital Spur Innovation?," NBER Working Papers 6846, National Bureau of Economic Research, Inc.
  13. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-84.
  14. Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring.
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