Association for Public Policy Analysis & Management

Endogenous growth theories have transformed economic growth paradigm with a more emphasis on education and research and development. These theories have also enhanced understanding about the role of knowledge in economic growth and its intertemporal spillovers. The theories and empirical studies have provided evidence that exogenously created firms produce knowledge endogenously which has spillover effect. The Knowledge Spillover Theory of Entrepreneurship (KSTE) extends this framework and incorporates knowledge as an input to endogenous firm creation. As knowledge and ideas are partially excludable, the spillovers of research and innovation in existing firms and laboratories induce firm creation to exploit unutilized commercial knowledge. The knowledge may transcend beyond scientific patents and research. The innovative business practices and ideas for design and marketing of the products and services also hold special significance in this process. The transfer and utilization of tacit knowledge by the economic agents play crucial role for firm creation.  The empirical research in North America and Europe has validated the KSTE.  However, there is scant research on this topic in Asia. The theory is also in line with the Austrian economics perspective which explains entrepreneurship as a dynamic process moderated by the market forces.

This paper will examine whether KSTE can explain entrepreneurship in Asia? The Asian continent hosts diverse countries, institutions, and businesses. There is huge diversity within countries and across the regions e.g. East Asia, South Asia, Middle East and Central Asia. Entrepreneurship is being focused as a policy lever in many Asian countries to accommodate rising youth in some parts of the continent while in some of the regions aging societies have been posing challenges to smooth growth trajectory and entrepreneurial activities.

The paper analyses validity of KSTE in Asia based on a country level panel data set from 2000-2015. The paper builds on the theatrical and empirical work by Acs, Braunerhjelm, Audretsch and Carlsson (2009) in the case of 19 OECD countries. The analysis informs about the diversity of Asian region in terms of entrepreneurship and role of knowledge towards firm creation. The institutional architecture and unique characteristics at national and sub-national levels matter for the diffusion of knowledge leading to entrepreneurship.