Determinants of Entrepreneurial and Innovative Activity in Finland and Estonia

Abstract

Until recently, there has been a lack of research considering the impact of demographic and economic factors on entrepreneurship and innovation. Still, the recent studies mostly consider only one variable, but does not consider the relative influence of different variables on entrepreneurship and innovation. This paper aims to find out how does demographic (immigration, median age, unemployment and education) and economic (taxation, unemployment insurance and R&D expenditure) factors compare in their influence on entrepreneurial and innovative activity in Finland and Estonia. Furthermore, this paper attempts to answer the question: does the most influential demographic and economic determinants differ between these two countries, and over time? This paper should be useful for policy makers to have a wider view of the relative influence of these variables on entrepreneurship and innovation, and this paper also shows that there is a lack of sufficient data sources to properly study this phenomenon.

This research uses linear regression analysis to compare the dependent variables, which are entrepreneurship (new born companies) and innovative activity (patent applications), to independent variables (demographic and economic variables). The analysis is also divided into three time periods to find out if the most influential variables change over time.

The main findings are that there similarities between different independent variables and their influence over innovation and entrepreneurship in Finland and Estonia. For instance, unemployment and corporate profit tax both had a negative correlation on entrepreneurship, while education had a positive influence. Interestingly R&D expenditure had a negative influence on innovative activity in both Finland and Estonia. It was also found out that none of the independent variables were significant in all of the three time periods, which means that although these variables are significant, this significance is not a constant, and it changes over time. As for future research, these variables could be analyzed in other countries to further establish the nature of the relationship between these variables. Additionally, the author would like to see more studies utilizing multiple time periods in studying entrepreneurial and innovative activity, since it brings in a new nuance that can reveal important details about these relationships.