The impact of start-ups and scale-ups on the Andalusian economy

Abstract

Although entrepreneurial spirit has traditionally been considered one of the main catalyst of the economy (Kirzner & Seldon, 1980) it has not been until a few years ago that public authorities have made a planned and organized effort to support entrepreneurial initiative (Peña, Guerrero, & González-Pernía, 2015). However, although many millions of euros are invested annually in this support, the effectiveness of this investment is rarely considered in relation with the impact of such entrepreneurial activity (start-up in English) on the economy (Lupiáñez, Priede, & López-Cózar, 2014). On the other hand, in recent months, public authorities are increasingly focusing the on so-called scale-ups: start-ups that have experienced growth of over 20% for at least three consecutive years (OECD, 2007). The general belief is that these companies have a great impact on the economy, especially in terms of employment (Mind the Bridge, 2017), but there are still very few studies on this. Therefore, in an environment of scarce public resources, we must ask ourselves if we should continue dedicating public resources to the generation of new companies (start-ups), or these should be directed to the promotion of scale-ups. In addition, in this type of companies there is an additional problem, and it is largely in the literature on this that it is practically impossible to identify in advance which companies will reach high levels of growth (Daunfeldt, Elert, & Johansson 2014) The main objective of this thesis, therefore, has been to provide insight into the problem of devoting resources to continue supporting start-ups or dedicate them, totally or partially, to finance scale-ups. This objective has been achieved through a focus on four research questions: a) In relation to the entrepreneurial activity (start-ups): 1. Define what can be considered as an entrepreneurial activity from the economic point of view. 2. Analyse the effect of this activity on the Andalusian economy and its impact on it. b) In relation to high-growth companies (scale-ups): 3. Compare the effect it would have if instead of creating new companies, existing ones were scaled. 4. Establish what factors support that a start-up becoming a scale-up. To reach objectives 1, 2 and 3, the methodology followed is based on the development of a Linear Model of General Equilibrium (Pyatt & Round, 1977) for the Andalusian economy for the year 2014. This model is based on the Social Accounting Matrix (SAM from now on) of Andalusia updated for the year 2014. A SAM is a statistical-accounting instrument that collects all the information of an economic system and closes the circular flow of income, estimating indirect and induced effects. This gives a general view of the implications of economic flows in the different sectors of activity and, at the same time, details and completes them (Fernández, Pilar, & Casimiro 2004). The SAM for Andalusia 2014 has a level of disaggregation of 35 economic activities (27 productive sectors plus 8 endogenous accounts that include items such as capital, consumption, labour, investment, taxes, public sector and foreign sector) (Cardenete, Delgado & Campoy, mimeo, 2016). Likewise, impact vectors have been developed for entrepreneurial activity and the different hypotheses proposed for the scale-ups, for which it has been necessary to make estimations for each of the activity sectors, taking as a base the official statistical information available on the creation of companies in Andalusia. In addition, productivity indicators have been used for SMEs and newly created companies, to find out and estimate the magnitude of business start-up for each activity sector. Finally, in order to achieve the fourth objective of our research, we have conducted a review of the literature on business growth factors, to select these factors and, working on the available statistical sources, compare the presence of these in Andalusian companies in general and in scale-ups, and to be able to draw some conclusions about the differential features of this last group. This thesis contains six chapters: Chapter 1 presents an overview of entrepreneurship and its contribution to regional development. In addition, the research questions and objectives of the thesis are presented. Chapter 2 presents our research question and the objectives developed to respond to it. In addition, the methodology that has been used to reach our objectives and estimate the economic impact of start-ups and scale-ups is presented. Specifically, we present the main features of a SAM linear model. This methodology is based on the development of a traditional Input-Output table with a more disaggregated structure of expenditure and income, integrating the relationships between institutional sectors, estimated with information from national accounting systems. Finally, we describe the storyline followed in the three following chapters. Chapter 3, 4 y 5 are dedicated to the practical application of the methodology. In particular, in Chapter 3 the impact of entrepreneurial activity in the Andalusian economy is estimated. In Chapter 4, venture growth is introduced, considering the importance it has for a regional economy and analysing the factors that differentiate Andalusian scale-ups from other companies. In Chapter 5, the economical impact of start-ups is compared with the potential economic impact of the high-growth firms considered scale-ups. These three chapters have provided the basis of three academic papers, which have been sent to different journals for publication. The first of them (corresponding to Chapter 3) has already been accepted by a high impact international journal indexed in Journal of Citation Reports. The other two are in the review process in high impact international journals indexed in Journal of Citation Reports or Scopus. Chapter 6 provides conclusions, future research lines and practical implications to address the problem of designing public policies and allocating public funds to support entrepreneurship.