Regional Knowledge Capabilities, Entrepreneurial Activity, and Productivity Growth: Evidence from Italian NUTS-3 Regions

Knowledge has replaced labor as the key factor for productivity growth in innovation discourse. The Knowledge Spillover Theory of Entrepreneurship (KSTE) provides the theoretical foundation to bridge the gap between knowledge and productivity growth. The way regional knowledge actually contributes to productivity growth requires a theoretical explanation because knowledge capability is an indirect and intangible input for regional productivity growth. Previous research has shown that entrepreneurship alone is insufficient to drive productivity improvements. We examine how knowledge capabilities lead to meaningful growth outcomes of new firms in a region. This study examines the determinants of productivity growth by analyzing the factors of entrepreneurship and knowledge capabilities at the regional level, especially considering the moderating effect of entrepreneurship between knowledge and regional growth; by comparing different dimensions of local knowledge capabilities; and by aggregating the contribution of knowledge capabilities and entrepreneurship to productivity growth at the regional level. The empirical analysis is performed on Italian NUTS-3 regions by utilizing an integrated data set combining patent data from the EPO PATSTAT database, and regional data from Eurostat regional statistics. This study makes two main contributions to the KSTE literature by linking knowledge, entrepreneurship, and regional growth and by providing empirical results on different aspects of regional knowledge capability. Our findings identify which types of local knowledge capabilities are more important and how related innovative activity interacts with entrepreneurial activity, elucidating the mechanisms by which knowledge affects labor productivity through entrepreneurship.