Localized competition in the knowledge spillover theory of entrepreneurship

The knowledge spillover theory of entrepreneurship predicts that the relationship between new knowledge and entrepreneurial activity depends on the commercialization efficiency of incumbents. We extend the theory to contend that localized competition impedes entrepreneurial activity by reducing the incentive to exploit new knowledge, and we test this conjecture using spatial panel estimation. We find a positive relationship between new knowledge and entrepreneurial activity, which is negatively moderated by localized competition. We also find that greater agglomeration counteracts the moderating effect localized competition has on the relationship between new knowledge and entrepreneurial activity.