The Economic Impact of Venture Capital

Astrid Romain and Bruno van Pottelsberghe de la Potterie
Authors registered in the RePEc Author Service: Bruno van Pottelsberghe de la Potterie (bruno.vanpottelsberghe@uni-corvinus.hu)

No 03-20, IIR Working Paper from Institute of Innovation Research, Hitotsubashi University

Abstract: 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.

Keywords: Venture Capital; Innovation; Productivity Growth; Absorptive Capability (search for similar items in EconPapers)
JEL-codes: D24 G24 M13 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2003-09
References: Add references at CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The economic impact of venture capital (2004)
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