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Venture Capital, Entrepreneurship, and Economic Growth

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  • Sampsa Samila

    (Brock University)

  • Olav Sorenson

    (Yale University)

Abstract

Using a panel of U.S. metropolitan areas, we find that increases in the supply of venture capital positively affect firm starts, employment, and aggregate income. Our results remain robust to a variety of specifications, including ones that address endogeneity. The estimated magnitudes imply that venture capital stimulates the creation of more firms than it funds, which appears consistent with two mechanisms: First, would-be entrepreneurs anticipating financing needs more likely start firms when the supply of capital expands. Second, funded companies may transfer know-how to their employees, thereby enabling spin-offs, and may encourage others to become entrepreneurs through demonstration effects. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Sampsa Samila & Olav Sorenson, 2011. "Venture Capital, Entrepreneurship, and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 338-349, February.
    • Handle: RePEc:tpr:restat:v:93:y:2011:i:1:p:338-349
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