Creative destruction and productivity: entrepreneurship by type, sector and sequence
| Date | 05 October 2012 |
| DOI | https://doi.org/10.1108/20452101211261417 |
| Pages | 125-146 |
| Published date | 05 October 2012 |
| Author | Martin Andersson,Pontus Braunerhjelm,Per Thulin |
| Subject Matter | Strategy |
Creative destruction and
productivity: entrepreneurship by
type, sector and sequence
Martin Andersson
Circle, Lund University, Lund, Sweden and School of Management,
Blekinge Institute of Technology (BTH), Karlskrona, Sweden, and
Pontus Braunerhjelm and Per Thulin
Department of Industrial Economics and Management,
Royal Institute of Technology, Stockholm,
Sweden and Swedish Entrepreneurship Forum, Sweden
Abstract
Purpose – Schumpeter claimed the entrepreneur to be instrumental for creative destruction and
industrial dynamics. Entrepreneurial entry serves to transform and revitalize industries, thereby
enhancing their competitiveness. The purpose of this paper is to investigate if entry of new firms
influences productivity amongst incumbent firms, and the extent to which altered productivity can be
attributed sector and time specific effects.
Design/methodology/approach – Implementing a unique dataset the paper estimates a firm-level
production function in which the productivity of incumbent firms is modeled as a function of firm
attributes and regional entrepreneurship activity.
Findings – The analysis finds support for positive productivity effects of entrepreneurship on
incumbent firms, albeit the effect varies over time, what the authors refer to as a “delayed entry effect”.
An immediate negative influence on productivity is followed by a p ositive effect several years after the
initial entry. Moreover, the productivity of incumbent firms in services sectors appears to be more
responsive to regional entrepreneurship, as compared to the productivity of manufacturing firms.
Originality/value – The paper employs a firm-level production function approach allowing for time
lags of the effect of entrepreneurship. The unique data implemented allow the authors to identify
genuinely new ventures as compared to those associated with reorganizations of existing businesses,
thereby overcoming much of data deficiencies in previous studies. In addition, data are distributed on
Swedish functional labor market regions.
Keywords Entrepreneurship, Entry, Business turbulence, Incumbent firms, Productivity, Region,
Business dynamics, Entrepreneurialism, Productivity rate, Sweden
Paper type Research p aper
1. Introduction
Schumpeter attributed the entrepreneur a critical role in the process of industrial
evolution and economic progress. By challenging existing economic structures through
innovative endeavors, the entrepreneur was claimed instr umental in promoting
growth and inducing structural change. In suc h processes of creative destruction the
entrepreneur combine knowledge, existing as well as new, in innovative ways, thereby
being an impetus to growth. The result is new products, services, inp uts, novel ways
of organizing production and the identification of new markets which all serve to
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2045-2101.htm
Journal of Entrepreneurship and
Public Policy
Vol. 1 No.2, 2012
pp. 125-146
rEmeraldGroup Publishing Limited
2045-2101
DOI 10.1108/20452101211261417
JEL classification – L26; L10; R11; D22; O31
The authors thank the Editor and the referees for constructive comments.
125
Creative
destruction and
productivity
transform industries and societies. More precisely, Schumpeter (1911/1934) described
the entrepreneur in the following way:
Whatever the type, everyone is an entrepreneur only when he actually carries out new
combinations and loses that character as soon as he has built up his business, when he settles
down to running it as other people run their business (p. 78).
And what have they done: they have not accumulated any kind of goods, they have created no
original means of production, but have employed means of production differently, more
advantageously. They have carried out new combinations! They are the entrepreneurs.
And their profit, the surplus to which no liability corresponds, is the entrepreneurial profit
(p. 132).
For our purposes, there are two particularly interesting insights that can be extracted
from these quotations; first, imitation as such would have little or no effects, and,
second, due to more efficient and novel production methods entrepreneurs are likely to
enjoy higher productivity than incumbents, reflected in the “entrepreneurial profit.”
The latter effect is in Schumpeter’s (1911/1934) model solely attributed the innovative
entrepreneur. It could however also be argued that part of that surplus may be
appropriated by other firms due to learning effects, spillovers and the incumbents
absorptive capacities, i.e. also incumbents become more productive. Suc h mechanisms
are a key element of contemporar y knowledge driven neo-Schumpeterian growth
models, where innovation play a critical role.
That innovation constitutes the major ingredient in growth seems undisputed.
Moreover, entrepreneurs has increasingly been acknowledged as being one essential
vehicle in converting know ledge to innovation, albeit there is considerably less
understanding of exactly how their endeavor translates into higher growth and
productivity (Braunerhjelm et al., 2010). Partly this is related to measurements problem
associated with the two concepts entrepreneur and innovation. Schumpeter viewed the
entrepreneur as distinctively separated from the inventor, who comes up with a new
discovery or invention, while the innovative part had to do with creating (market)
value. Thus, entrepreneurs and innovations were two inseparable concepts, but, as
reflected in Schumpeter’s statements above, the entrepreneurial part ceased as soon as
production became “business as usual.” In contemporary industrial o rganization
models, the firm is often modeled as embracing both of these comp etencies – that is,
both inventors and innovators are represented among employees. Such integ rated
firms may also have higher capacities to absorb new knowledge brought to the market
by entrepreneurial entry.
The main objective of this paper is to investigate if entry influences productivity
among incumbent firms and the extent to which a productivity effect differs depending
on the sector to which the entrant fir ms belong. In doing so, we account for the time
sequence of the effect of entry. Recent research emphasize that it is important to
acknowledge that the dynamics due to entry may differ over time (van Stel and Storey,
2004; Fritsch and Mueller, 2008, Fritsch, 2011). In the short-run entry may, for example,
yield price competition that tends to lower revenues for incumbents firms but would
also increase purchasing power and could eventually boost profits and diversity over
time. In addition, it may attract purcha sing power from outside the region and overall
make the region more attractive.
We estimate a firm-level production function for incumbent firms augmented with
variables reflecting the level of entrepreneurship in the region the firms are located in.
The estimated effects of entrepreneurship and business dynamics on the productivity
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