The Entrepreneurial Ecosystem

In this book the authors explore and debate through a fine lens the economic, social, and policy approaches that characterize fruitful research on entrepreneurial ecosystems with economically meaningful implications for policy. The collection of chapters included in the book is an important manifestation that presents various challenges that exist ‘on the ground’ so to speak that influence the shaping and output of entrepreneurial ecosystems. The approach taken up in this book is a systematic one oriented to understanding different aspects of entrepreneurial ecosystems (i.e., definitional and measurement issues, and the complementary role of the ecosystem framework to analyze the digital economy) and to contrast these two aspects with positions reported by relevant contemporary empirical work rooted in different theoretical groundings.

The authors discuss the importance of composite indicators for capturing the complexity and multidimensionality of different phenomena and propose an analysis based on the penalty for bottleneck (PFB) method to show how plausible policy recommendations can be extracted from composite indicators. The basic problem of the policy application of composite indicators lies on their limited capacity to handle the ingredients of the studied phenomenon from the systemic perspective. The resulting PFB-based policy recommendation is clear: the bottleneck component should be improved first because it has a magnifying effect on the other system indicators. Unlike other methodologies, the PFB analysis allows to create a policy-portfolio mix that optimizes the use of additional resources. The authors explore a practical application of the PFB methodology to the Global Entrepreneurship Index data. The authors conclude that the PFB can be successfully applied to numerous fields in order to provide more accurate policy recommendations than other methodologies that do not take a system-based bottleneck approach.

Lafuente evaluates the determinants of countries’ total factor productivity in a nonparametric model that integrates differences in technology choices. The author finds that, for both OECD and non-OECD countries, technical change and total factor productivity growth are associated with higher rates of capital deepening. Results also indicate that the countries’ technology choices (biased technical change) have a direct impact on productivity results. Public policies promoting economic growth should consider the national system of entrepreneurship as a critical priority, so that entrepreneurs can contribute more effectively to allocate resources in the economy.

The authors discuss how increased globalization, economic complexity and dynamism exacerbate contradictions between theoretical and empirical-driven arguments. In this discussion, the authors offer an analysis of the entrepreneurship paradox—that is, entrepreneurship is good for the economy but entrepreneurial activity is consistently higher in less developed and developing countries over time—through the lenses of two relevant tensions that underlie this paradox: the development tension (i.e., the inconsistent relationship between entrepreneurship and economic performance) and the policy tension (i.e., the unclear role of entrepreneurship policy on entrepreneurship outcomes). The authors explore the policy implications of this theoretical paradox by scrutinizing the effect of both the rate of entrepreneurial activity (quantity-based entrepreneurship) and the entrepreneurial ecosystem (quality-based entrepreneurship) on economic performance (GDP per capita). The empirical exercise, based on a sample of 81 countries from Africa, America, Asia and Europe, focuses on how the development tension and the policy tension shape the entrepreneurship paradox. In exploring these two theoretical tensions, the authors define and distinguish quantitative entrepreneurship from the systemic, quality-based entrepreneurial ecosystem and set forth alternative policies to reconcile the tensions between entrepreneurship and development. The analysis of the entrepreneurship paradox contributes to the debate on the economic role of entrepreneurship and concludes highlighting that, regardless of their development level, economies do not need more entrepreneurs but rather a healthy entrepreneurship ecosystem that supports the optimal channeling of entrepreneurship outcomes to the economy.

Sebestyén, Komlósi, and Szerb present a methodology to monetize the different pillars of the Regional Entrepreneurship Development Index (REDI). The REDI methodology provides a normalized value to describe the entrepreneurial ecosystem using natural units of the different measures as inputs to the calculation. To offer more informed policy analyses, the authors adopted a two-step approach. First, econometric techniques are employed to assign monetary values to the REDI variables. By entering the REDI scores into a production function explaining regional GDP levels, the authors estimate the marginal contribution of the REDI to regions’ monetized output, which they link to the marginal value of the REDI in a given region. Second, the authors use a standard shadow pricing approach in which the resulting monetized REDI score is traced back to its components, thus offering a monetized approximation of the pillars that form the REDI composite indicator. The analysis concludes with an exposition of the policy implications that can be drawn from analyses based on this approach.

Szerb and Komlósi offer a direct analysis of regional ecosystems based on the Regional Entrepreneurship and Development Index (REDI). The authors acknowledge that the REDI approach is based on homogeneous (across regions) and fixed (across pillars) pillar weights, thus ignoring part of regions’ heterogeneity. Therefore, they enhance the REDI methodology by using the benefit of the doubts (BOD) weighting technique. The BOD method reflects a value judgment on the optimal configurations of REDI constituents. The discussion pays close attention to the connection between meaningful composite indicators and policy-making. If policy makers are given objective, nonarbitrary information about the importance of REDI pillars, resource allocation should follow an economically meaningful process. Quantity improvements are ensured if additional resources are deployed, but for an equal quantitative change in the REDI score, enhancements will be qualitatively superior if policy makers target a clear set of priorities. Based on the BOD enhanced REDI, the authors provide a score on the quality of the entrepreneurial ecosystem for 125 European Union (EU) regions, and conclude with an analysis of specific entrepreneurship policies for 23 large EU regions.

Varga, Sebestyén, Szabó and Szerb estimate the economic impact of entrepreneurship policy. Entrepreneurship policy should be added to the palette of public interventions promoting economic growth. Despite the growing evidence, the authors discuss the difficulties in measuring how a given policy intervention would affect economic growth in a particular country or region and how these effects change over time. The authors propose that these policy effects can be estimated with economic impact models, and introduce the most recent version of GMR-Europe to determine the economic repercussion of entrepreneurship-specific policy interventions. To illustrate the capacity of the model, the authors provide a detailed policy impact assessment analysis.

The world is today a more digitally integrated place; however, digital inequality still prevails and its repercussions (e.g., poor access to information, e-commerce, remote education, remote work, and remote healthcare) have aggravated with the Covid-19 pandemic. In this debate, Lafuente, Acs, and Szerb adopt a power-law approach to scrutinize digital inequalities in 107 countries during 2000–2019. The authors take the digital inequality discussion to a more qualitative level by connecting their findings to the quality of countries’ digital ecosystem. Building on the nuance that digital integration encompasses digital technologies and a healthy digital ecosystem, the empirical exercise shows significant progress in digital integration during 2000–2019; however, digital integration is slowing down since 2015. The inspection of countries’ digital ecosystem suggests that digital policies targeting governance (e.g., regulation and data privacy) and platforms’ activities (e.g., social media and online payments) are critical to enhance the digital system and, consequently, reduce digital inequality and its negative manifestations.

Song and Waters narrate a tale of two cities, namely, Washington metropolitan area and Baltimore metropolitan area; about the rise of one and the fall of the other; about a metro that landed Amazon’s distribution centers and the other, highly coveted the company’s second headquarters (HQ2). In today’s knowledge economy where the most valuable companies are digital platforms, it’s a winner-take-all when it comes to regional economic development. The authors discuss how the paradigm of place-based policies of the industrial age that sought to attract large manufacturers with tax incentives is outdated. There is no better example of this paradigm shift in economic development from cost minimization to value maximization, from emphasis on physical capital to human capital, embodied in the case of Amazon HQ2 race, which ultimately landed in Crystal City, Virginia. Amazon HQ2 race represents a great lesson for what technology businesses value: talent. Virginia demonstrated a good understanding of tech firms’ market needs and its development strategy evidenced the importance of prioritizing the talent pipeline.

Bosanquet qualitatively considers various arguments that characterize the entrepreneurial profile of Elon Musk. This chapter first contemplates entrepreneurship in an effort to develop baseline standards by which we might then evaluate Elon Musk. A secondary analysis compares Elon Musk against two of his predecessors, Henry Ford and Kiichiro Toyoda. Likewise, the author compares Tesla Motors with Ford Motor Company and Toyota Motor Corporation. Several accusations against Elon Musk will also be weighed, especially those which might challenge notions of Musk as an innovator, founder, and (ultimately) entrepreneur.

Sulyok discusses legal and regulatory issues that arise in a ‘platform context.’ The author contrasts some of the natural drivers nurturing the digital platform ecosystem and incentivizing technological progress, and testing the limits of nations as digital regulators. The ‘IT-debate,’ which nowadays revolves around how to tackle growing pressures by recent IT developments, has gained weight in public discourse. In discussing essential state functions in a digital context, relevant questions for legal scholars, regulators, and economists are addressed, including when and to what extent States should regulate digital markets to set rights and delimit possible violations that range from privacy to freedom of speech. As States breach the digital barrier through technological evolution, the concept of sovereignty emerges in the digital sphere which leads to a ‘regulatory revolution’ that materializes in increased regulation of big data, much scrutizined actions of the ‘big five,’ and algorithmic decision-making, among others. A long-standing question in the legal community is whether law has primacy over policy or vice versa. However, in today’s digital context, the question should rather be whether the platform economy has primacy over law (politics and policy) or whether it should be the other way around.

Root proposes a framework in which complex system analytics plays a pivotal role for enhancing entrepreneurship scholarship and policy. The author suggests new ways to think about the connections between the decisions and strategies of agents and the structure of the environment in which choices are made. The provocative debate of the chapter emphasizes the importance of evaluating the connections between system variables at their macroscopic scale, in the hope of defining global properties that are independent of the details at the microscopic scale. The author concludes that the analysis of entrepreneurial ecosystems through the lens of complex adaptive systems has the potential to produce a literature that is richer in insights about the informal constraints, such as social norms, beliefs and ideologies, and the cognitive processes and cultural elements that underpin them, leading to a meta-theory that integrates a community’s culture and its historical specificity with its entrepreneurship ecosystem.