Innovation and Economic Growth: Delineating the Impact of Large and Small Innovators in European Manufacturing

In the course of the past decades, the link between innovation and economic growth has become a wellestablished one in the economic literature. In the current study an attempt has been provided to complement this line of research with an assessment of the wealth implications of the ‘entrepreneurialisation’ of innovation systems. Relying on a 9 year panel of post-millennial observations for 22 European countries and using stock based patent indicators, it was found that on top of the positive productivity impact of innovative activity growth, a premium effect can be observed when the stake of small firms in it increased at the same time. These findings can be interpreted as confirming Baumol’s (2004) assignment of different roles to large and small firms in innovation systems: the former as provider of the technological breakthrough that the latter improves in a range of incremental steps. The entrepreneurialisation of manufacturing as a whole, measured by the stakes of small businesses in employment, yields a productivity discount: outside of innovative activities, economies of scale outweigh co-occurring diseconomies of scale. Distinct country groups in different stages of economic development form the main drivers of both entrepreneurialisation effects: a core of North-Western European countries that has attained the innovation-driven stage against a periphery of Southern and Eastern European countries around them that have not transcended the more preliminary efficiency-driven stage. Further rationales explaining the additional explanatory power of entrepreneurial innovation were found in the weakening of the link between innovation measured by patents and added value in large firms. Conference Topic Country-level studies; Patent analysis