Does Government Support Moderate the Innovation–Entrepreneurship Nexus? Evidence from BRICS Economies

Abstract

Though there is considerable state investment in innovation in emerging economies, the results of the entrepreneurship are still skewed, and it is in doubt as to whether the technological innovation necessarily results in the entrepreneurial dynamism. The paper will test the hypothesis of whether government support is a moderating factor in the relationship between technological innovation and entrepreneurship in BRICS economies (Brazil, Russia, India, China, and South Africa) between the years 2001-2023. Based on the theory of institutional and entrepreneurial ecosystems, the research contributes to the literature in that it models government support as a conditioning strategy and not a direct agent in determining entrepreneurship. The analysis is conducted using a dynamic Cross-Sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) framework, which takes into consideration cross-sectional dependency, heterogeneous response of countries and dynamic adjustment. Total Early-Stage Entrepreneurial Activity is used as an indicator of entrepreneurship, resident patent applications scaled by population as an indicator of technological innovation and a composite governance index based on PCA is used as an indicator of government support. Control variables are economic growth and human capital. The results indicate that there were three important findings. To begin with, there is a weakly negative and statistically insignificant direct impact on entrepreneurship by technological innovation, which indicates that innovation in itself is not always considered to be a key driving force of entrepreneurship in BRICS economies. Second, the government aid has a positive direct impact on entrepreneurship that is strong. Third, and most importantly technological innovation-government support interaction is negative and statistically significant that implies that government support systematically restructures the innovation-entrepreneurship nexus. In the marginal effects test, innovation exhibits a weak positive or zero association with the level of government support, but the association increases to negative as level of government support increases, suggesting that with high level of government support, there is a diversion of innovation towards existing channels dominated by the incumbent that are highly formalised and restrict entry of entrepreneurs. The study has theoretical significance through its ability to illustrate the non-neutral nature of government support in conditioning the entrepreneurial payoff of innovation, empirical significance through its provision of sound dynamic results with the help of second-generation panel techniques, and practical importance through its focus on the necessity of entrepreneur-involving policies on innovation. On the whole, the results can be used to come up with new knowledge on why innovation-based development policies might fail to result in the development of widespread entrepreneurship in developing countries.

Keywords: Technological innovation, Entrepreneurship, BRICS, Government support, Institutional moderation, CS-ARDL