Localized Clustering of Entrepreneurship for Innovation: Social Capital and Institutional Determinants

The paper presents a social capital process that accounts for the geographic clustering of entrepreneurial ventures aimed at attaining technological innovations.  It defines a fundamental tradeoff between (a) obtaining external resources (technical and market knowledge, human and material assets) crucial to initiate and advance innovation ventures and (b) releasing confidential information about the innovation project in the process to obtain the resources.  Localized networks of inter-personal relations with embedded social capital trust may lessen this tradeoff.  Social capital trust is defined as a genuine inter-personal network phenomenon concerning a reputational community.  The differentiated presence of those social networks across geographic regions contributes to explain the clustering of entrepreneurship for innovation in specific regions and, hence, solve the theoretic puzzle raised by Breschi and Lissoni (2001) on the causal mechanisms underpinning the clustering of innovation activities.  The paper contributes to the localized knowledge spillover literature’s (Feldman 1999) aim of vindicating cities and regions as proper socioeconomic units for the analysis of knowledge-based economic development.  The analysis presented also considers how local cultural institutions may affect the presence and relevance of social capital trust embedded in the professional networks of a city/region and, thus, enhance its appeal to internationally mobile entrepreneurial and innovation talent.  It examines how international talent relocating to a particular geographic location may affect its pool of social capital trust.  The paper is based on a review of relevant literature and interview data on entrepreneurs’ experiences.