What Turns Knowledge into Innovative Products? The Role of Entrepreneurship and Knowledge Spillovers

The knowledge spillover theory of entrepreneurship seeks to explain the fundamentals and consequences of entrepreneurship with respect to economic performance. This paper uses the knowledge spillover theory to explain different innovation outcomes. We hypothesize that a high rate of entrepreneurship facilitates the process of turning knowledge into new-to-the-market innovation but has no effect on the relationship between knowledge and new-to-the-firm innovation. Our results using European country-level and pooled OLS, fixed- and random-effects regressions show that a high rate of entrepreneurship increases the chances that knowledge will become new-to-the-market innovation. The findings highlight the importance of Schumpeterian entrepreneurship in the process of the commercialization of knowledge. We discuss the implications for entrepreneurship and innovation policy.