Slavo Radosevic and Esin Yoruk School of Slavonic and East European Studies

1. Entrepreneurial Propensity of Innovation Systems: A Preliminary Analysis with Composite Indexes in the EU Regions Slavo Radosevic and Esin Yoruk School of Slavonic and East European Studies Centre for Comparative Economics University College London

2. Outline • Entrepreneurship (micro v. macro perspective) • EPIS: Opportunities from a macro perspective • TO, MO, IO • Methodology • Indexes: IKIE and IKIEO • Cluster analysis of IKIEO • Indexes analysed as broken down to their components • Conclusions

3. Approaches to Entrepreneurship • Micro level perspectives (E’ship is property of individuals) • Realist (I-O nexus): Entrepreneur discovers and exploits opportunities (Based on Hayek 1945, Von Mises 1943, Kirzner 1973, developed by Shane 2000, Shane and Eckhardt 2003) • Constructionist: Entrepreneur interprets resources and designs opportunities (Based on Berger & Luckmann 1966 and Penrose 1959, developed by Sarasvathy 2001, Baker & Nelson 2005) • Evolutionary realist: Entrepreneur “creates” opportunities (Based on Schumpeter 1934, developed by Azevedo 1997,2002, Venkataraman 2003) • Macro level perspective (E’ship is property of economic and innovation systems) • The capacity of IS to generate entrepreneurial opportunities is in the core of our approach. • This capacity is shaped by TO, MO, IO in the system.

4. Two views on E’ship (micro v. macro)

5. Entrepreneurial Opportunities from a System of Innovation Perspective • TO: Schumpeter (1934) E’ship is a function of innovation opportunities, which is a key pre-condition for generation of entrepreneurial rents. • MO:Kirzner (1973) EO are function of imbalances, distortions, asymmetries and various disequilibria in the market. • IO: List (1909) E’ship is a function of the development of a national system of political economy and related institutional complementarities conducive to e’ship.

7. Entrepreneurial propensity of innovation system (EPIS) • EPIS = knowledge intensive entrepreneurship (KIE) * innovation system (IS) concepts. • EPIS is their capacity to generate and exploit entrepreneurial opportunities in order to create new knowledge-intensive enterprises, new technologies (innovations) and new knowledge • The underlying idea is that KIE is a systemicfeature of IS and that new knowledge, innovation and entrepreneurship are inseparable elements of dynamic IS. • Composite proxies of EPIS • knowledge intensive entrepreneurship (KIE) • knowledge intensive entrepreneurial opportunities (KIEO)

8. Research Questions • What is the entrepreneurial propensity of innovation systems of the EU countries in terms of knowledge intensive entrepreneurship (KIE) and knowledge intensive entrepreneurial opportunities (KIEO)? • Are there specific groupings of EU countries in terms of these two indexes? • What are specific features of entrepreneurship that can be generated based on systemic perspective?

9. IKIE – Index of Knowledge Intensive Entrepreneurship

10. IKIEO – Index of Knowledge Intensive Entrepreneurial Opportunities

11. Developing the Indexes I: Composite index, Xi: Normalised indicator, wi: Weight of the Xi,  0 ≤ w ≤ 1 i: 1,…, n. Normalization method:Min-Max(distance from the best and worst performers) Aggregation method: Linear agg. Robustness: 1. Cronbach’s alpha measures for each component 2. Factor analysis for indicators of each component 3. A sound theoretical framework is the primary ingredient.

12. Results – Index ranks by country

13. A systemic nature of e’ship • IKIE and IKIEO reflect very broadly the levels of development (GDP pc) + A high correlation between IKIE and IKIEO > reflect a systemic nature of entrepreneurship • Economic growth as largely cumulative process driven by virtuous or vicious cycles (Krueger, 1993) > complementarities between different activities in SI > entrepreneurial experimentation > new entrepreneurial opportunities v. mismatches > obstacles or barriers to entrepreneurial experimentation > reduce further EO

14. K-means cluster analysis of IKIEO • The level of development explains less than 50% of variance in IKIE and IKIEO • Grouping = f (developmental)*(varieties of capitalism) features

15. IKIE and IKIEO are positively and closely associated with each other. • For the low EO group, relationship is not significant > the larger mismatches between IS • activities > decreased EO.

16. IKIE is higher in high and medium EO countries. • NE component seems not to differ much among countries. • NTI component is higher in high and medium EO countries (i.e. Innovative enterprises, innovation expenditures) • Low EO countries have disadvantage in KI component (i.e. patents, royalty receipts, etc.)

17. Low EO countries > relatively weaker in KI and NTI; NE as substitute

18. Countries do not differ so much in terms of dynamics of new firms but in terms of entrepreneurial opportunities as systemic properties of their IS.

19. In absolute terms, high and medium EO countries enjoy the advantages of higher levels of TO, MO and IO in IKIEO.

20. High EO countries have higher share of TO in IKIEO > closer to technology frontier. • Low EO countries: a higher share of IO in IKIEO

21. Differences in components of TO, MO and IO • TO: Low EO countries are the most disadvantaged in R&D component of TO, where BERD and GERD is at much lower rates than the high and medium EO countries. • TO: Low EO countries compensate their disadvantages in R&D by higher shares of knowledge networking in TO component of IKIEO. • MO: Low IKIEO countries are strongly constrained with finance available to new firms and in market for KIS. • IO: In absolute terms, high and medium EO countries enjoy the advantages of regulation and support (mainly for incubation activities and ease of starting up business) • Share of regulation v. support regarding IO does not seem to differ much between countries > ? institutional convergence and coherence policies across EU in terms of liberalisation of business environment and regulatory framework?

26. Preliminary Results I • KIE and KIEO reflect levels of development but also types of capitalism > systemic nature of e’ship • Three groups of EU countries in terms of KIE/KIEO; CEE is split across two clusters – CEE is in less and medium developed EU groups which resemble groupings from the 19th century. • KIE • At higher levels of development TO, MO and IO operate as complements; at lower levels they operate as substitutes > virtuous/vicious circles (cf. Gerschenkron). • TO and IO components explain higher IKIE in high and medium IKIEO countries; not MO. • Statistical association between IKIE and MO is not significant for all groups of countries (cf. KIE is not ordinary - market led - but technology led – Schumpeterian - e’ship)

27. PreliminaryResults II • In high level KIEO group, new enterprise component is relatively less significant when compared to knowledge intensity component. In low KIEO group the major share of KIE is about new enterprises and much less about knowledge intensity. • IKIEO • Group with high KIEO have higher share of R&D component while group with lower KIEO has higher share of knowledge networks > knowledge networks operate as substituting mechanism for weak knowledge generating capabilities • In terms of MO there are big absolute differences across three groups. There is a relatively higher share of KIS and finance components in high KIEO group and lower share of demand component. This counterintuitive result becomes less puzzling when we take into account that we are monitoring KIE, not ordinary entrepreneurship. • IO also differs across three groups but this is largely differences in levels rather than in different focus between regulatory environment and public support > IO in EU27 is more about levels or distances from the reference EU models rather than about VoC.