Assessment of the impact of venture capital investment on labour productivity: an analysis of the EU countries
Abstract
This study investigates the impact of venture capital investments on the labour productivity of the European Union countries. Considering the fact that there is a lack of research on evaluating the effects of venture capital investments on labor productivity at the country level, the methodology designed in this article is used to assess heterogeneous impact of venture capital investments, which is determined by the innovative environment or financial development factors, on labour productivity in 25 EU countries. Panel data of 25 European Union countries were used for the regression analysis. The findings of the empirical study show that the volume of venture capital investments does not determine the growth of labour productivity in the analysed countries. Such results can be explained by the economic findings presented by other researchers. Some of the studies found that it is not venture capital investments that determine economic growth, innovation or technological development, but these economic phenomena increase venture capital investment. Based on statistical data, the greatest need for venture capital investments in Europe is in sectors that develop new technologies and in the information and communication technology sector. Therefore, the volume of venture capital investments in the analysed countries is too small at the macroeconomic level and their effect on labour productivity is manifested at the level of companies or specific sectors.
Keyword : venture capital investment, labour productivity, innovation, financial development, research and development, European Union countries
How to Cite
Padgureckienė, A., & Cibulskienė, D. (2024). Assessment of the impact of venture capital investment on labour productivity: an analysis of the EU countries. Journal of Business Economics and Management, 25(6), 1184–1201. https://doi.org/10.3846/jbem.2024.22725
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Lerner, J., & Tag, J. (2013). Institutions and venture capital. Industrial and Corporate Change, 22(1), 153–182. https://doi.org/10.1093/icc/dts050
Li, Y., Zhu, Q., & Mao, F. (2024). The impact of venture capital on the digital industry development: Evidence from China. Asian-Pacific Economic Literature, 38(1), 93–109. https://doi.org/10.1111/apel.12404
Makomaski, K., & Johansson, M. (2013). Venture capital. The current state of the Swedish market [Master Thesis]. Centre for Banking and Finance. http://www.diva-portal.org/smash/get/diva2:634094/FULLTEXT01
Marti P., & Alemany, J. L. (2006). Productivity growth in spanish venture-backed firms. SSRN. https://ssrn.com/abstract=1087954
Matisone, A., & Lace, N. (2021). Effective venture capital market development concept. Journal of open Innovation: Technology, Market and Complexity, 7, 1–29. https://doi.org/10.3390/joitmc7040218
Montanaro, B., Croce, A., & Ughetto, E. (2024). Venture capital investments in artificial intelligence. Journal of Evolutionary Economics, 34, 1–28. https://doi.org/10.1007/s00191-024-00857-7
Naveed, A., & Wang, C. (2023). Innovation and labour productivity growth moderated by structural change: Analysis in a global perspective. Technovation, 119, 1–16. https://doi.org/10.1016/j.technovation.2022.102554
Padgureckienė, A. (2024). Rizikos kapitalo investicijų poveikio darbo produktyvumui vertinimas Europos Sąjungos šalyse [daktaro disertacija]. Vilniaus universitetas. https://doi.org/10.15388/vu.thesis.575
Padgureckienė, A. (2023). Assessment of venture capital investments impact on the countries labour productivity. Applied Scientific Research, 2(2), 160–172. https://doi.org/10.56131/tmt.2023.2.2.182
Poelhekke, S., & Wache, B. (2023). The impact of venture capital on economic growth (Discussion Paper No. TI 2023-050/VIII). Tinbergen Institute, Amsterdam and Rotterdam. https://hdl.handle.net/10419/282863
Popov, A., & Roosenboom, P. (2013). Venture capital and new business creation. Journal of Banking & Finance, 37(12), 4695–4710. https://doi.org/10.1016/j.jbankfin.2013.08.010
Pottelsberghe van de la P. B., & Romain, A. (2004). The economic impact of venture capital (Bundesbank Series 1 Discussion Paper No. 2004, 18). SSRN. https://doi.org/10.2139/ssrn.2785063
Pradhan, R. P., Arvin, M. B., Nair, M., & Bennett, S. E. (2017). Venture capital investment, financial development, and economic growth: The case of European single market countries. Venture Capital, 19(4), 313–333. https://doi.org/10.1080/13691066.2017.1332802
Pradhan, R. P., Arvin, M. B., Nair, M., Bennett, S. E., & Bahmani, S. (2019). Short-term and long-term dynamics of venture capital and economic growth in a digital economy: A study of European countries. Technology in Society, 57(C), 125–134. https://doi.org/10.1016/j.techsoc.2018.11.002
Pradhan, R. P., Arvin, M. B.., Nair, M., Bennet, S. E. Bahmani, S., & Hall, J. H. (2018). Endogenous dynamics between innovation, financial markets, venture capital and economic growth: Evidence from Europe. Journal of Multinational Financial Management, 45, 15–34. https://doi.org/10.1016/j.mulfin.2018.01.002
Revest, V., & Sapio, A. (2012). Financing technology-based small firms in Europe: What do we know? Small Business Economics, 39(1), 179–205. https://doi.org/10.1007/s11187-010-9291-6
Romer, P. (1986). Increasing returns and long-run growth. The Journalof Political Economy, 94(5), 1002–1037. https://doi.org/10.1086/261420
Romer, P. (1990). Endogenous technological change. Journal of Political Economy, 98, 71–102. https://doi.org/10.1086/261725
Samila, S., & Sorenson, O. (2011). Venture capital, entrepreneurship, and economic growth. The Review of Economics and Statistics, 93(1), 338–349. https://doi.org/10.1162/REST_a_00066
Schofer, P., & Leitinger, R. (2002). Framework for venture capital in the accession countries to the European Union. SSRN. https://doi.org/10.2139/ssrn.314412
Schumpeter, J. (1949). Theory of economic development: An inquiryinto profits, capital, credit, interest, and the business cycle. Harvard University Press.
Shahnazi, R. (2021). Do information and communications technology spillovers affect labor productivity? Structural Change and Economic Dynamics, 59, 342–359. https://doi.org/10.1016/j.strueco.2021.09.003
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65–94. https://doi.org/10.2307/1884513
Sun, W., Zhao, Y., & Sun, L. (2020). Big data analytics for venture capital application: Towards Innovation performance improvement. International Journal of Information Management, 50, 557–565. https://doi.org/10.1016/j.ijinfomgt.2018.11.017
Svirydzenka, K. (2016). Introducing a new broad-based index of financial development (IMF Working Papers 16(5)). https://doi.org/10.5089/9781513583709.001
Wang, S., Wareewanich, T., & Chankoson, T. (2023). Factors influencing venture capital perforsmance in emerging technology: The case of China. International Journal of Innovation Studies, 7, 18–31. https://doi.org/10.1016/j.ijis.2022.08.004
Wooldridge, J. M. (2003). Introductory econometrics: A modern approach (2nd ed.). South-Western Publishing Co.
Bertoni, F., Kolombo, M. G., & Grilli, L. (2011). Venture capital financing and the growth of high-tech start-ups: Disentangling treatment from selection effects. Research Policy, 40(7), 1028–1043. https://doi.org/10.1016/j.respol.2011.03.008
Chemmanur, T., Karthik, K., & Debarshi, N. (2011). How does venture capital financing improve efficiency in private firms? A look beneath the surface. Review of Financial Studies, 24, 4037–4090. https://doi.org/10.1093/rfs/hhr096
Coccia, M. (2018). Optimization in R&D intensity and tax on corporateprofits for supporting labor productivity of nations. The Journal of Technology Transfer, 43(3), 792–814. https://doi.org/10.1007/s10961-017-9572-1
Colombo, M. G., & Murtinu, S. (2014). Venture capital investments in Europe and firm productivity: independent versus corporate investors. SSRN. https://doi.org/10.2139/ssrn.2384816
Crose, A., Marti, J., & Murtinu, S. (2013). The impact of venture capital on the productivity growth of European entrepreneurial firms: “screening” or “value added” effect? Journal of Business Venturing, 28(4), 489–510. https://doi.org/10.1016/j.jbusvent.2012.06.001
Delgado, M., Ketels, C., Porter, M. E., & Stern, S. (2012). The determinants of national competitiveness. National Bureau of Economic Research. https://doi.org/10.3386/w18249
Demmou, L., Stefanescu, I., & Arquie, A. (2019). Productivity growth and finance: The role of intangible assets – a sector level analysis (Working Papers 1547). OECD Economics Department. https://doi.org/10.1787/18151973
Dua, P., & Garg, N. K. (2019). Determinants of labour productivity: Comparison between developing and developed countries of AsiaPacific. Pasific Economic Review, 24(5), 686–704. https://doi.org/10.1111/1468-0106.12294
Faria, A. P., & Barbosa, N. (2014). Does venture capital really foster innovation? Economics Letters, 122(2), 129–131. https://doi.org/10.1016/j.econlet.2013.11.014
Friedrich, R. (1982). In defense of multiplicative terms in multiple regression equations. American Journal of Political Science, 26(4), 797–833. https://doi.org/10.2307/2110973
Frimpong, F. A., Akwaa-Sekyi, E. K., & Saladrigues, R. (2022). Venture capital healthcare investments and health care sector growth: A panel data analysis of Europe. Borsa Istanbul Review, 22(2), 388–399. https://doi.org/10.1016/j.bir.2021.06.008
Gabison, G. A. (2015). Venture capital principles in the European ICT ecosystem. Joint Research Centre, European Union, Luxembourg. https://publications.jrc.ec.europa.eu/repository/handle/JRC98783
Geronikolaou, G., & Papachristou, G. A. (2008). Venture capital and innovation in Europe. SSRN. https://doi.org/10.2139/ssrn.1309186
Grilli, L., Latifi, G., & Mrkajic, B. (2019). Institutional determinants of venture capital activity: An empirically driven literature review and a research agenda. Journal of Economic Surveys, 33(4), 1094–1022. https://doi.org/10.1111/joes.12319
Groh, A. P., & Wallmeroth, J. (2016). Determinants of venture capital investments in emerging markets. Emerging Markets Review, 29, 104–132. https://doi.org/10.1016/j.ememar.2016.08.020
Heil, M. (2018). Finance and productivity: A literature review (Economics department working papers, No. 1374). https://doi.org/10.1111/joes.12297
Invest Europe. (2021). Investing in Europe: Private equity activity 2021. https://www.investeurope.eu/media/5184/invest-europe-activity-data-report-2021.pdf
Karahan, O. (2016). The interaction between venture capital and innovation in Europe. In European Financial System 2016: Proceedings of the 13th International Scientific Conference (pp. 306–313). Masaryk University, Brno, Czech Republic.
Khan., N., Qu, H., Qu, J., Wei, C., Wang, S. (2021). Does venture capital investment spur innovation? A cross-countries analysis. SAGE Open, 11(1), 1–13. https://doi.org/10.1177/21582440211003087
Lee, N. C., Sameen, H., & Cowling, M. (2015). Access to finance for innovative SMEs since the financial crisis. Research Policy, 44, 370–380. https://doi.org/10.1016/j.respol.2014.09.008
Lerner, J., & Tag, J. (2013). Institutions and venture capital. Industrial and Corporate Change, 22(1), 153–182. https://doi.org/10.1093/icc/dts050
Li, Y., Zhu, Q., & Mao, F. (2024). The impact of venture capital on the digital industry development: Evidence from China. Asian-Pacific Economic Literature, 38(1), 93–109. https://doi.org/10.1111/apel.12404
Makomaski, K., & Johansson, M. (2013). Venture capital. The current state of the Swedish market [Master Thesis]. Centre for Banking and Finance. http://www.diva-portal.org/smash/get/diva2:634094/FULLTEXT01
Marti P., & Alemany, J. L. (2006). Productivity growth in spanish venture-backed firms. SSRN. https://ssrn.com/abstract=1087954
Matisone, A., & Lace, N. (2021). Effective venture capital market development concept. Journal of open Innovation: Technology, Market and Complexity, 7, 1–29. https://doi.org/10.3390/joitmc7040218
Montanaro, B., Croce, A., & Ughetto, E. (2024). Venture capital investments in artificial intelligence. Journal of Evolutionary Economics, 34, 1–28. https://doi.org/10.1007/s00191-024-00857-7
Naveed, A., & Wang, C. (2023). Innovation and labour productivity growth moderated by structural change: Analysis in a global perspective. Technovation, 119, 1–16. https://doi.org/10.1016/j.technovation.2022.102554
Padgureckienė, A. (2024). Rizikos kapitalo investicijų poveikio darbo produktyvumui vertinimas Europos Sąjungos šalyse [daktaro disertacija]. Vilniaus universitetas. https://doi.org/10.15388/vu.thesis.575
Padgureckienė, A. (2023). Assessment of venture capital investments impact on the countries labour productivity. Applied Scientific Research, 2(2), 160–172. https://doi.org/10.56131/tmt.2023.2.2.182
Poelhekke, S., & Wache, B. (2023). The impact of venture capital on economic growth (Discussion Paper No. TI 2023-050/VIII). Tinbergen Institute, Amsterdam and Rotterdam. https://hdl.handle.net/10419/282863
Popov, A., & Roosenboom, P. (2013). Venture capital and new business creation. Journal of Banking & Finance, 37(12), 4695–4710. https://doi.org/10.1016/j.jbankfin.2013.08.010
Pottelsberghe van de la P. B., & Romain, A. (2004). The economic impact of venture capital (Bundesbank Series 1 Discussion Paper No. 2004, 18). SSRN. https://doi.org/10.2139/ssrn.2785063
Pradhan, R. P., Arvin, M. B., Nair, M., & Bennett, S. E. (2017). Venture capital investment, financial development, and economic growth: The case of European single market countries. Venture Capital, 19(4), 313–333. https://doi.org/10.1080/13691066.2017.1332802
Pradhan, R. P., Arvin, M. B., Nair, M., Bennett, S. E., & Bahmani, S. (2019). Short-term and long-term dynamics of venture capital and economic growth in a digital economy: A study of European countries. Technology in Society, 57(C), 125–134. https://doi.org/10.1016/j.techsoc.2018.11.002
Pradhan, R. P., Arvin, M. B.., Nair, M., Bennet, S. E. Bahmani, S., & Hall, J. H. (2018). Endogenous dynamics between innovation, financial markets, venture capital and economic growth: Evidence from Europe. Journal of Multinational Financial Management, 45, 15–34. https://doi.org/10.1016/j.mulfin.2018.01.002
Revest, V., & Sapio, A. (2012). Financing technology-based small firms in Europe: What do we know? Small Business Economics, 39(1), 179–205. https://doi.org/10.1007/s11187-010-9291-6
Romer, P. (1986). Increasing returns and long-run growth. The Journalof Political Economy, 94(5), 1002–1037. https://doi.org/10.1086/261420
Romer, P. (1990). Endogenous technological change. Journal of Political Economy, 98, 71–102. https://doi.org/10.1086/261725
Samila, S., & Sorenson, O. (2011). Venture capital, entrepreneurship, and economic growth. The Review of Economics and Statistics, 93(1), 338–349. https://doi.org/10.1162/REST_a_00066
Schofer, P., & Leitinger, R. (2002). Framework for venture capital in the accession countries to the European Union. SSRN. https://doi.org/10.2139/ssrn.314412
Schumpeter, J. (1949). Theory of economic development: An inquiryinto profits, capital, credit, interest, and the business cycle. Harvard University Press.
Shahnazi, R. (2021). Do information and communications technology spillovers affect labor productivity? Structural Change and Economic Dynamics, 59, 342–359. https://doi.org/10.1016/j.strueco.2021.09.003
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65–94. https://doi.org/10.2307/1884513
Sun, W., Zhao, Y., & Sun, L. (2020). Big data analytics for venture capital application: Towards Innovation performance improvement. International Journal of Information Management, 50, 557–565. https://doi.org/10.1016/j.ijinfomgt.2018.11.017
Svirydzenka, K. (2016). Introducing a new broad-based index of financial development (IMF Working Papers 16(5)). https://doi.org/10.5089/9781513583709.001
Wang, S., Wareewanich, T., & Chankoson, T. (2023). Factors influencing venture capital perforsmance in emerging technology: The case of China. International Journal of Innovation Studies, 7, 18–31. https://doi.org/10.1016/j.ijis.2022.08.004
Wooldridge, J. M. (2003). Introductory econometrics: A modern approach (2nd ed.). South-Western Publishing Co.