Venture Capital, Economic Growth and Innovation

The aim of the thesis is to investigate the relationships between the three concepts of venture capital (VC), economic growth, and innovation prospects in the European Union (EU) and European Free Trade Association (EFTA) member states. The research differs significantly from the existing literature in two ways. First, no studies up until now have considered that monetary integration differences exist in the European market. Due to this, interaction variables such as the Eurozone and meeting the European Exchange Rate Mechanism (ERM) criteria to be a Eurozone member are specifically used in Sections 5 and 6. Second, this study uses indexes extensively to represent findings, rather than independent secondary data. The relationships between the three aforementioned concepts are investigated with random effects (RE) and fixed effects (FE) models. Chapter 4 analyzes how primary economic variables affect Europe’s VC activity. Section 5 takes into account how post-secondary education, labor, goods, the financial market, market size, and innovation-boosting activities affect VC investments in high-income European states, with a specific focus on the Eurozone, opt-outs, and others. Section 6 investigates human capital and the innovation ecosystem, with the focus again on the Eurozone, opt-outs, and others. The findings in Section 4 outline how the private sector’s institutional quality, infrastructure, and primary education system are equally essential for strengthening VC activity within the continent. In Section 5, the results suggest that the effect is predominantly dependent on the specification tested. The general sample indicates that post-secondary education and innovation-related activities promote the performance of VC activity, but when the interaction variables for all the models are used, the story differs. Finally, Section 6 shows that human capital is essential for VC investments. For the whole sample, post-secondary education promotes VC. However, when the Eurozone and ERM interaction variables are applied, those countries show an adverse impact on post-secondary education while primary education and the healthcare system prove otherwise. For the remaining countries, the post-secondary education effect is significant. For the innovation ecosystem, it is found that for the general sample, technological readiness and innovation exert a strengthening impact on VC activity, while for Eurozone and ERM countries, innovation and exports both promote VC investments. Furthermore, technological readiness has a promoting effect on non- ERM countries while exports have harmful effects. Additionally, it is highlighted that sophisticated techniques in business are likely to adversely affect VC investment in Eurozone states.