Effects of power in council and innovation governance on local entrepreneurship in the Swedish IT sector

Many studies have shown that economic characteristics of an industry are important for local and regional entrepreneurship (creation of new firms) in high tech industries. However, we still know less about the additional explanatory power of local and regional politics in general, and the effect of innovation governance in the form of university-industry cooperation initiatives in particular. In this paper, we analyze the effects of local politics and innovation governance on entrepreneurship in the Swedish IT-sector. Data on industrial agglomeration and entrepreneurship come from Statistics Sweden. Data on innovation governance comes from a survey with local government representatives performed in 2009 in all the 290 Swedish local governments on the extent to which they have cooperation with university and industry on innovation. The findings show that high tech entrepreneurship depends on two separate economic factors. In some areas, entrepreneurship is driven by unemployment. In contrast, in other areas entrepreneurship is mainly driven by industrial agglomeration. Two separate political factors contribute to further explain a higher level of local entrepreneurship. First, entrepreneurship is significantly higher in areas governed by socialist coalition majorities in government. Secondly, we find that not only power in council matters: contrary to the effects of the ideologically driven interventional approach of socialist coalition governments, we find that in other areas entrepreneurship is driven by governance, through cooperation on innovation between government and university actors. In contrast to traditional political and economic theories, thus firm entry seems to depend on a more complex dual economic and political model.