The role of entrepreneurship in society has changed drastically over the last half century. During the post-World War II era, the importance of entrepreneurship and small businesses seemed to be fading away. While alarm was expressed that small business needed to be preserved and protected for social and political reasons, few made the case on the grounds of economic efficiency.
Hence small firms and entrepreneurship were viewed as a luxury, perhaps needed by the west to ensurea decentralization of decision making, but in any case obtained only at a cost to efficiency (Pratten, 1971; Weiss, 1976). Moreover, SME were shown to provide lower levels of employee compensation (Brown and Medoff, 1989; Brown, Hamilton and Medoff, 1990), to be less engaged in foreign direct investment (Horst, 1972), to be less involved in innovative activities (based on R&D measures, see Audretsch, 1995) and consequently, the relative importance of SMEs was declining overtime in both North America and Europe.
However, this trend has reversed in recent years. While in the US, the relative importance of SMEs, measured through average GDP per firm, decreased between 1947 and 1980, it has reincreased since then (Brock and Evans, 1989; Loveman and Sengenberger, 1991; Acsand Audretsch, 1993). Similar evidence is found when considering only the manufacturing industry (Acsand Audretsch, 1990). This trend reversal was not limited to North America. Audretschetal. (2002) report that business ownership rate in the Netherlands decreased systematically until the beginning of the 1980's only to rise again since then. The same trend is found when measuring the importance of Dutch SMEsthough employment shares (EIM, 2002). Similar evidence has been found for Western Germany, Portugal and Italy (Acsand Audretsch, 1993; Audretschand Thurik, 2001).
Audretschand Thurik (2001) argue that SMEshavebecome more important as the comparative advantage has shifted towards knowledge-based economic activity. This has occurred for two reasons. First, large enterprises in traditional manufacturing industries offering standardized products have lost their competitiveness in producing in the high-costdomesticcountries. Second,small entrepreneurial enterprises take on new importance and value in a knowledge-based economy. Let us discuss these two arguments inturn.
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Entrepreneurship Capital Determinants and Impact on Regional Economic Performance
