Recent Research

The strength of personal relationships and social connections are the most important factors for accessing capital markets according to a recent working paper from the National Bureau of Economic Research (NBER). Theresa Kuchler, Yan Li, Lin Peng, Johannes Stroebel, and Dexin Zhou — using a novel modeling system and index of “social connectedness” — conclude that physical, geographical proximity has long served as the primary proxy for measuring how the social connections among firms and investors across geographies affect access to capital markets and investment decisions. These findings may have far reaching impacts for businesses from any region—not just those closer to investment hubs—as well as for entrepreneurial support organizations and other stakeholders seeking to strengthen their local innovation communities.

Many of the most successful technology, life science and advanced companies in the country received financing in the form of an equity investment during their rapid growth and scaling stages of development.  Whether viewed as valiant, villains or vultures, the presence of individuals and firms willing to provide capital to companies when they have few physical assets or revenues is strongly associated with healthy regional innovation economies. As a result, considerable policy attention has been focused by states on increasing the amount of risk capital flowing to local startups.

The objective is simple: high wage, innovation-driven economic development. State policy makers want those entrepreneurial companies to grow jobs and wealth within their boundaries. Approaches vary – and achieve considerable variation in their degrees of success – but one of the most widely implemented are angel investment tax credits, found in 31 states in the study discussed below.

Non-college workers who long found refuge and economic mobility in thriving cities have seen those opportunities diminish and in turn have moved out of the areas. Although cities remain vibrant for workers with advanced degrees, “the urban skills and earnings escalator for non-college workers has lost its ability to lift workers up the income ladder,” finds David Autor in his recent research brief. The Faltering Escalator of Urban Opportunity highlights this troubling trend plaguing cities since 1980 and posits some policy prescriptions to try to combat the negative trends. Additionally, Autor cautions that the present COVID-19 crisis could exacerbate the challenges afflicting non-college workers in U.S. cities.

Since 2005, the One North Carolina Small Business Program has made 423 SBIR/STTR matching awards worth nearly $26 million to more than 250 businesses throughout the state. A new assessment, which updates an earlier report, provides academic rigor to a standard program review. The results indicate that even beyond survey-based attestations to the program’s value, there is a statistically-significant impact of North Carolina’s funding for the competitiveness of recipients.

The new assessment is published in the Annals of Science and Technology Policy by John W. Hardin and David J. Kaiser of the North Carolina Board of Science, Technology, and Innovation and Albert N. Link of UNC Greensboro, the editor-in-chief of the publication. The most original portion of the article is an assessment of program data using regression analysis, which provides a more rigorous evaluation of relationships between variables than can be achieved through correlation alone.

Uncommon innovation is more likely to be found in high density areas, according to recent research. An article by Enrico Berkes of The Ohio State University and Ruben Gaetani of the University of Toronto, found that high-density areas boast more unusual combinations of prior knowledge, often across technologically distant fields. Their results indicate that geography affects innovation, as high-density areas produce more diverse, original research (i.e. unconventionality) while low-density areas are more likely to produce research within specific clusters.

What holds people back from starting a business? How does lifting financial constraints help promote entrepreneurship? A recent article by Vyacheslav Mikhed of the Federal Reserve Bank of Philadelphia Consumer Finance Institute,  Sahil Raina of the University of Alberta, and Barry Scholnick of University of Alberta and Federal Reserve Bank of Philadelphia Consumer Finance Institute, explores these questions, and how lifting these economic constraints affected entrepreneurial and self-employed business ventures in Canada from 2002-2016. By comparing lottery winnings to new business endeavors, they found that entrepreneurs face greater financial constraint when starting a business than those who are self-employed.

In a new working paper, Sabrina T. Howell of New York University and Filippo Mezzanotti of Northwestern University provide a systematic review of state angel tax credits. One of the most notable aspects of their research is a seemingly-comprehensive index of all of the relevant programs authorized by states over the past 30 years. The results indicate that angel tax credits have some impact on investment activity but not on economic outcomes. The authors provide evidence that the reason for this seeming discrepancy could be due to program design allowing existing activity to benefit from the new credits.

Jennifer Roche prepared the following summary of a recent Enrico Moretti working paper for the November 2019 issue of the NBER Digest. The summary has been edited here for length and clarity; SSTI comments are in brackets.

More than half of all inventors in the United States’ three dominant high-tech fields — computer science and information technology; semiconductors; and biology and chemistry — increasingly worked in clusters of 10 cities through 2007, Enrico Moretti reports in The Effect of High-Tech Clusters on the Productivity of Top Inventors (NBER Working Paper 26270). He asks why inventors tended to locate near one another in tech centers such as San Francisco and Seattle despite the high costs of living in these locations.

A review of recent reports finds the rise of financial technology (fintech) has the potential to improve the financial health and literacy of the traditionally underbanked and decrease discriminatory practices as more people gain access to services and are included in financial markets. However, regulators face new challenges as a result of fintech.

The state of Alaska is in the midst of a funding crisis that could devastate the viability of the University of Alaska, and recent research from a National Bureau of Economic Research (NBER) working paper shows that the loss of funding could have long-term impacts for the system. While highly ranked research universities have been able to adapt to declining subsidies by raising tuition, attracting out-of-state and international students, and sometimes raising funding from philanthropic sources, public universities outside of this top tier have not been able to replace lost dollars, say the paper’s authors.

A recent paper published by SSRN provides a detailed look at the relationship between financial incentives and state fiscal health. The authors control for many potentially-related factors and still find significant, negative impacts of incentives. While the study helps fuel calls for critical analysis and careful implementation of tax incentives, the results may not be as clear cut as some coverage may suggest.

Bruce McDonald et al.’s, “You Don't Always Get What You Want: The Effect of Financial Incentives on State Fiscal Health” measures the incentives against current-year fiscal health. This approach is reasonable for assessing immediate fiscal impacts, which particularly matter in states with balanced-budget requirements, and also makes sense for a starting point in a potential line of research.

As the technology behind renewable energy continues to advance, recent research finds that the public sector plays an important role in catalyzing innovation. This can be seen in three main ways: by funding basic research on renewable energy in all 50 states; by partnering with cleantech startups; and by supporting cleantech clusters through networks, commercialization assistance, and access to capital. Taken together, this recent research suggests that public-sector partnerships can complement industry’s role in growing the green economy at the federal, state and local levels.