More than an Ivory Tower: The Impact of Research Institutions on the Quantity and Quality of Entrepreneurship

While universities are often associated with strong entrepreneurial ecosystems, the underlying drivers of this relationship have proved more elusive. Universities are often located in economic and innovation environments conducive to growth-oriented entrepreneurial activity, are themselves a source of (potentially skill-biased) local demand, and produce knowledge, which might serve as the foundation for new ventures. The principal contribution of this paper is to provide systematic empirical evidence for the unique role that universities play in shaping local entrepreneurial ecosystems, and in so doing allow for a reconceptualization of the underlying theoretical and policy drivers of the impact of universities on entrepreneurship. Our analysis includes three key interrelated steps. First, we combine comprehensive business registration records with a predictive analytics approach to estimate both the quantity and (growth-oriented) quality of entrepreneurship at the level of individual zip codes over time. Second, we link these locations to the presence or absence of research-oriented universities or national laboratories, and we construct comparison groups based on ex ante similarities in terms of demographics and the local economic environment. Finally, we take advantage of significant changes over time in Federal commitments to both universities and national laboratories, and in particular of the distinction between research-oriented versus more general financial support for university activities. Together, these building blocks allow us to highlight three core findings related to the role of universities on local entrepreneurial ecosystems. First, universities are associated with not only a higher level of entrepreneurship but in particular a higher level of quality-adjusted entrepreneurship (i.e., startups with a higher potential for growth at founding), and this relationship has strengthened over time. Second, demographic and economic factors associated with the presence of a university are even even more strongly associated with entrepreneurship.