Entrepreneurship and country-level innovation: investigating the role of entrepreneurial opportunities

Since the work of Schumpeter, entrepreneurship has been regarded as a concept that is in close relation to innovation. However, recent country level investigations show that technology innovation and new business creation can be regarded as two separate phenomena. In this paper we provide an explanation for the above contradiction through the distinguishing between two types of entrepreneurship, necessity and opportunity entrepreneurship. Building on opportunity theory and rational choice theory, we investigate the influence of both types of entrepreneurship on country-level innovation, and furthermore, pay particular attention to the interaction between opportunity entrepreneurship and the amount of opportunities available. We find that necessity entrepreneurship is inversely related to country-level innovation, whereas opportunity entrepreneurship is positively linked to technological progress. The positive effect of opportunity entrepreneurship, however, diminishes with an increased amount of entrepreneurial opportunities. This interaction indicates that opportunity availability is an important element of a country's entrepreneurship environment.