Irish Innovation: US research debunks policy makers' myths in Ireland
By Michael Hennigan, Finfacts founder and editor
Feb 12, 2014 - 4:04 AM

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Irish Innovation: "Minister Bruton and the Department of Jobs are unashamedly ambitious for the potential of scientific research in Ireland to support economic growth and job-creation in Ireland," the enterprise, jobs and innovation department told Finfacts last December. However, faith is not a good basis for public policy and recent US research shows that despite billions of dollars in US government research expenditures, "which widely are believed to trickle down to the private sector, area research universities and patents do not contribute to higher rates of entrepreneurship." Education appears to be the most significant factor that the public sector may affect. Metropolitan areas with more college graduates will produce more startups.

A Kauffman Foundation report, produced by America's leading entrepreneurship think-tank, which was released last month highlights the impact of education on rates of business startups and growth in metropolitan areas, while disputing the impact of certain factors that previously have been touted for their influence.

The paper, "Beyond Metropolitan Startup Rates: Regional Factors Associated with Startup Growth," [pdf], reports on entrepreneurship activity in 356 US metros as examined from three angles: the startup rate for all industries, the startup rate for high-tech sectors and the rate for high-growth firms.

  • Key findings in this paper dispel some myths about what factors influence startup rates and growth in metro areas: Contrary to conventional understanding in literature, we find few significant factors that the public sector can affect. Despite billions of dollars in government research expenditures, the presence of research universities and patents are not associated with higher rates of entrepreneurship.
  • The most significant factor by the public sector is related to education. High school and college completion is important when it comes to startup rates. However, while it is true that a high ratio of college graduates in a metropolitan area means more startups, a substantial high school completion rate will further increase the area’s startup rate.
  • The investment level of financial organizations, primarily by venture capitalists, in a metro area does not correlate to high startup activity. And VC-invested regions do not necessarily generate a higher ratio of startups. Policymakers should not rush to create public venture funds in the hope of creating more startups or a startup culture.
  • High-tech sectors are not hotbeds for all kinds of startups – only for high-tech sectors. In other words, promoting high-tech entrepreneurship does not necessarily bring up the overall economy.
  • Not surprising, but confirming, larger metropolitan areas tend to have higher entrepreneurial rates, possibly from the diversity and resilience of their economies.

Finfacts reports:

Irish Innovation: Evidence of science policy failure mounts

Irish Medium-Term Economic Strategy 2014-2020: Innovation and entrepreneurs? - - Part 3

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