Reading questions

1: Basic Information
Paper Entrepreneurship Capital and Economic Performance
Author Audretsch and Keilbach
Keywords Production function, Entrepreneurship Capital, Regional Economic
Performance
Date November 2004

Theoretical The neoclassical model of the production function links labour and
Framework capital to output. Romer expanded it to include measures of knowledge
capital.
Historical
period

Biographical
relevant info

2: Theoretical details
Basic Idea Introduces a new factor on the production function – entrepreneurship
(IV-(?)->DV) capital. The results show that it is an important factor, thus they suggest
a new direction for policy decisions.
Assumptions Entrepreneurial activity has impact on production and growth

Critic to Definition of entrepreneurial knowledge

Assumptions

Methodology Empirical – Germany data

Possible M.
Flaws

Theoretical Ascendents – Solow and Romer (all growth and production function
“ascendents” theory)
and
“descendents”

3: Contribution
How did this It calls attention to different variables that impact production.
contributed at
the time of
the writing?
New concepts Entrepreneurial capital

What is/was The way they measure entrepreneurial capital

controversial?

What is/was
generally
accepted?

5: Topics
Interesting
Details

General Simple idea. Seems logic – but for me it seems there’s something
Feeling missing…
Outline/ Note page

Abstract
The neoclassical model of the production function, as applied by
Solow when building the neoclassical model of growth, linked labour
and capital to output. More recently, Romer and others have
expanded the model to include measures of knowledge capital. This
paper introduces a new factor, entrepreneurship capital, and links it
to output in the context of a production function model.

Entrepreneurship Capital

What is entrepreneurship capital?

The failure of a single definition of entrepreneurship to emerge

undoubtedly reflects the fact that it is a multidimensional concept.

Definitions of entrepreneurship typically vary between the economic

and management perspectives.

Entrepreneurship capital – a region’s endowment with factors

conducive to the creation of new businesses.

Involving aspects such as

• a high endowment with individuals willing to take the risk of
starting up a new business.
• existence of a regional milieu that encourages start-up activities
such as an innovative milieu,
• the existence of formal and informal networks,
• a general social acceptance of entrepreneurial activity and the
activity of bankers and venture capital agents willing to share
risks and benefits involved.

Impacts of entrepreneurship capital

1. It is a mechanism for knowledge spillovers

2. Increased competition by an increased number of enterprises
3. Providing diversity among the firms

Production Function Model and Measurement issues

The goal of the paper is to state that a region’s endowment with entrepreneurship capital
exerts a positive impact on the region’s economic output.

Using a specification of the Cobb-Douglas type:

• K – physical capital
 • L – labour
• R – Knowledge capital
• E – entrepreneurship capital
• I – refers to German regions

Variables:
• Output – gross value added corrected for purchases of goods and services, VAT
and shipping costs
• Physical Capital – stock of capital as a weighted sum of past investments
• Labour – number of employees liable to social insurance by Kreise.
• Knowledge capital – number of employees engaged in R&D in the public and
private sectors
• Entrepreneurship capital
o Start-up rates
o Turbulence
o Stock of new firms

Summary and Conclusion

Endogenous growth theory has triggered a new policy direction focusing on enhancing
knowledge capital through investments in R&D, education and human capital, now we
see that entrepreneurial capital also have a great impact, thus policy should consider this
impact.