Differentiating innovation and entrepreneurial theories on developed and underdeveloped economies
Authors:   ,   Universidad del Desarrollo, Mahn Borkowsky Daniel Alfredo 
Published: December 2023

Entrepreneurship and innovation are crucial drivers of economic growth and are therefore used as public policy tools in Western economies. As such, emergent and underdeveloped economies have been importing and replicating successful policy models from developed countries in an attempt to catch up with advanced nations. As many of the theories in the economic and entrepreneurship literature have taken on the perspective of developed countries, their authors have stated the need to test them in different settings to further delineate their boundary conditions and robustness. Three essays, each focusing on a different theory of entrepreneurial innovation, are developed to test this idea. The first essay focuses on how the knowledge spillover theory of entrepreneurship (KSTE), which details the mechanism by which unused knowledge accumulates in a region and transforms into new businesses, behaves when anchored in the context of a developing economy. The regional data from Chile covering the period of 2010 to 2019 that is applied as a case study for the identification of boundary conditions shows that the theory has low effectiveness, as it only applies to those industries with a high dependency on knowledge. It also highlights the roles played by human capital, diversity, and barriers to entry in these kinds of markets. The second essay examines how informal institutions lure cross-border venture capital (VC) inflows into a market. The main rationale behind the study is that private funding entering or leaving a country can detail how the cultural characteristics of that country benefit or block its VC enabling capability, allowing us to explore an ideal set of cultural characteristics. To test this, a country-pair dataset of cross-border VC investments is used and the Hofstede et al. (1990) cultural framework is applied as a proxy for informal institutions. The results confirm and expand those of the prior literature, establishing specific cultural characteristics that support and hinder both investors and entrepreneurial activity. When adding interaction effects with formal institutions' development, the results imply that the ideal set of informal institutions for fostering VC activity differs depending on the level of formal institutions. Finally, the third essay tests whether the link between optimism and innovative capabilities holds when shifting from an individual to an aggregated level. Using a year sample of 42 countries between 2000 and 2020 and separating the effect of optimism on its two main sources of innovation, new and incumbent firms, our results suggest that the link between optimism and innovation is not straightforward: the results vary depending on the measures of innovation and optimism taken for analysis. First, our results support that business confidence (incumbent firms) supports more researchers involved in research and development and higher total factors of productivity increments (TFP), while consumer confidence (new firms) only affects TFP. Second, when separating the sample by income levels, in high-income economies, more optimism increases the number of researchers, while in middle-income countries, optimism affects spending on R&D and TFP. Finally, our results do not show any significant effects of overoptimism on the dependable variables.