High-growth entrepreneurship in a developing country: regional systems or stochastic process?

Abstract

High-growth entrepreneurship represents a key socioeconomic phenomenon that is expected to spur aggregate levels of innovation, competitiveness and economic growth. Nonetheless, its impacts are mainly felt at the regional level, making a case for investigating the dynamics of Regional Systems of Entrepreneurship. While several approaches have dealt with this issue in the context of developed economies, approaches to developing nations are still scarce and they suggest that the underlying conditions can be significantly distinct to those observed in advanced countries. This research addresses this situation by investigating the determinants of entrepreneurial activity in Brazilian states. Two main explanatory dimensions are created (markets and knowledge infrastructure) to predict entrepreneurial activity (absolute numbers, density, and specialization). Econometric estimations comprehend data from gazelle firms in Brazilian states throughout the period 2008-2014. Findings allow identifying the existence of relevant agglomeration diseconomies and an overall lack of connection between the knowledge infrastructure and entrepreneurship. These conditions suggest that high-growth entrepreneurship in Brazil has a strong stochastic character – or embryonic Regional Systems of Entrepreneurship. Thus, the geographic dynamics of entrepreneurial activity in this country is remarkably different from what has been observed in developed countries in general. This might indicate the inadequacy of entrepreneurship policy in developing countries that emulates initiatives undertaken in leading innovation systems: building functional systems of entrepreneurship can be a challenge that goes beyond subsidies allocated to new ventures.