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The Impact of Venture Capital on Economic Growth

Author

Listed:
  • Steven Poelhekke

    (Vrije Universiteit Amsterdam)

  • Benjamin Wache

    (CPB Netherlands)

Abstract

Does venture capital (VC) investment yield economic growth? A large literature studies the effect of VC investments on firm-level activity, but its effects on economic growth are less well understood. We identify the effect of VC investment flows on destination county employment, wages, and establishment creation, using a novel instrument that captures the ‘social connectedness’ of counties to major sources of VC investment. Using detailed data on VC flows from investors to companies, we find a large positive impact of VC investment, suggesting that strong social connections to large venture capital hubs are an important contributor to regional economic growth.

Suggested Citation

  • Steven Poelhekke & Benjamin Wache, 2023. "The Impact of Venture Capital on Economic Growth," Tinbergen Institute Discussion Papers 23-050/VIII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20230050
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    More about this item

    Keywords

    Growth; venture capital; social connectedness;
    All these keywords.

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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