INDIVIDUAL AND COUNTRY-LEVEL DETERMINANTS OF GROWTH ASPIRATION IN NEW VENTURES Paper to be presented at the Babson Conference on Enterpreneurship Research Madrid, June 6-9, 2007 Erkko Autio, Imperial College Zoltan Acs, University of Baltimore ABSTRACT We examined country-level factors that moderate the effect of individual-level characteristics on entrepre- neurial growth aspirations Several years of the GEM data were pooled to study links between taxation, intellectual property protection, economic growth, and entrepreneurial growth aspirations. The findings show that country-level variables moderate the extent to which individuals aspire to exploit their human and social capital through entrepreneurial ventures. INTRODUCTION Empirical studies point to the important role played by high-growth firms in job creation (Birch, Haggerty, & Parsons, 1997; Fölster, 2000; Storey, 1994; Van Stel & Storey, 2004). Even though Birch’s (1979) early findings probably overstated the importance of new firms for job creation, there is growing evidence for this link from several countries (Arzeni, 1998; Autio, 2005; Davidsson, Lindmark, & Olofsson, 1994; Kirchhoff, 1994; Picot & Dupuy, 1998). Depending on the phase of the economic cycle, new firms may be responsible for anything from one third to up to the totality of net job creation in different economies. Fölster (2000) found that every self-em- ployment decision meant the net creation of 1,3 new jobs in Sweden, after the effects of various intervening mechanisms were controlled. According to the Longitudinal Establishment and Enterprise Microdata (LEEM) database, new establishments created 69% of net new jobs in the US from 1990 to 1995, and new firm start-ups which did not exist prior to 1990 created 22% of new jobs (Acs, 1998; Audretsch, 2002). While the importance of new firms for job creation is an important insight, it is equally important to recognize that the job creation potential is unevenly distributed among new firm populations. Only a relatively small proportion of all new firms end up generating the bulk of new jobs. In the United Kingdom, Storey (1994) found that only 4% of new firms born in any given year accounted for 50% of all the jobs created by the surviving firms within that cohort after ten years had elapsed. Kirchhoff (1994) found that the 10% of fastest-growing firms contributed to three quarters of new jobs during an eight-year observation period within a cohort of firms started in the US in 1978. According to Birch et al. (1997), the so-called gazelles accounted for more than 70% of the employment growth in the U.S. between 1992 and 1996, while representing only about three percent of the firm population. In the GEM data, nascent and new entrepreneurs, who expected to create 20 or more jobs in five years’ time, represented only some 7% of the total population of nascent and new entrepreneurs, and yet their contribution to total expected jobs by all early-stage entrepreneurs was 75% (Autio, 2005; Autio, 2007). Thus, while all entrepreneurial activity is important, high-growth entrepreneurial activity is particularly so. Even though evidence pointing to the importance of high-growth entrepreneurial activity for job creation and economic dynamism is widespread, little is known about what drives high-growth entrepreneurial activity in national contexts. This is probably due, in large part, to data issues. High-growth entrepreneurial activity is rare: in the GEM data, only 7,4% of all nascent and new entrepreneurs expected to create 20 or more jobs, and such individuals represented only 0,9% of the adult-age population. Only 1,7% of all early-stage entrepreneurs expected more than 100 jobs, and they represented only 0,2% of the adult-age population (Autio, 2007). Collecting representative data on such a rare phenomenon can be prohibitively expensive, and the expense