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Venture capital dynamics, the public sector and the high technology industry

Author

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  • Avi Messica
  • Tamir Agmon

Abstract

The high technology (hi-tech) sector has become an important factor for economic growth in many countries. Israel is an extreme case where most of the production of the hi-tech sector is exported, and moreover, comprises more than half of its industrial exports. In this study, we focused on the optimal funding of the public sector for the hi-tech industry in the presence of short-term, cyclical, venture capital funding. We addressed the first issue by constructing a decision-making model that results in the optimal governmental support for the hi-tech sector. For the latter issue, we constructed a model that accounts for the dynamics of the venture capital (VC) industry over 1995-2005. Our findings indicate that the VC industry is highly correlated with the NASDAQ composite stock index and that it is a supply-driven market. The optimal public sector's policy for funding the hi-tech sector should be anti-cyclical, dynamic and conditioned on the VC investments as well as on the specific sector that is supported. The models and their validation against empirical data are presented and discussed as well as the practical implications for policy and decision-makers.

Suggested Citation

  • Avi Messica & Tamir Agmon, 2009. "Venture capital dynamics, the public sector and the high technology industry," International Journal of Entrepreneurship and Innovation Management, Inderscience Enterprises Ltd, vol. 10(3/4), pages 227-242.
    • Handle: RePEc:ids:ijeima:v:10:y:2009:i:3/4:p:227-242
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