The Internationalisation of Venture Capital Activity in OECD Countries: Implications for Measurement and Policy
OECD, STI Working Paper 2000/7
Günsel Baygan, Michael Freudenberg
Abstract
Venture capital has grown significantly in most OECD countries during the 1990s, and is increasingly associated with improved firm performance in terms of survival rates, innovation and growth. This paper compares venture capital activity across OECD countries by taking into account international venture capital flows. Most comparisons are based on data concerning investments made by venture capital funds located in a given country ("country of management"). In contrast, this paper also uses a more policy relevant measure that examines data on investments made in a country ("country of destination"), by subtracting cross-border outflows and including inflows. For countries such as Ireland, Denmark and Switzerland, inflows plus outflows largely outweigh investments by domestic venture capital funds. Some countries, especially Ireland and Denmark, have significant net inflows of venture capital, while net outflows appear for the United Kingdom and Switzerland. While such cross-border flows can improve the efficiency of the global venture capital market, they can also reduce the relative importance of domestic supply factors in favour of domestic demand factors, such as creativity, innovation, risk-taking and entrepreneurship. However, OECD countries also differ in terms of barriers to entrepreneurship and entrepreneurial activity. Preliminary results indicate a strong negative relationship between barriers to entrepreneurship and venture capital investments. Countries with low barriers to entrepreneurship tend to have more active venture capital markets, and vice versa.
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