Knowledge-based service economy and firm entry: an alternative to the knowledge spillover theory of entrepreneurship

Recent research on the determinants of high-tech business entry increasingly relies on the knowledge spillover theory of entrepreneurship (KTSE), which contends that employees-turned-entrepreneurs start new companies in order to commercialize unused local knowledge generated by incumbent firms and universities. Existing literature in the USA context finds a positive relationship between regional knowledge production and (total) high-tech start-up rates, which is interpreted as lending empirical support to the theory. In this paper, we perform a systematic test of the KSTE and show that KSTE-based explanation of business entry is not always consistent with the US firm formation patterns when the analysis gradually shifts from less to more knowledge-intensive environments. We then discuss alternative business entry mechanisms that are more in line with the geographical and sectoral variation in the US high-tech start-up rates.