Please cite this article in press as: Radosevic, S., Yoruk, E., Entrepreneurial propensity of innovation systems: Theory, methodology and evidence. Res. Policy (2013), http://dx.doi.org/10.1016/j.respol.2013.01.011 ARTICLE IN PRESS G Model RESPOL-2826; No. of Pages 24 Research Policy xxx (2013) xxx–xxx Contents lists available at SciVerse ScienceDirect Research Policy jou rn al h om epage: www.elsevier.com/locate/respol Entrepreneurial propensity of innovation systems: Theory, methodology and evidence Slavo Radosevic ∗ , Esin Yoruk SSEES – School of Slavonic and East European Studies, UCL - University College London, 16 Taviton Street, London WC1H 0BW, UK a r t i c l e i n f o Article history: Received 12 December 2011 Received in revised form 14 December 2012 Accepted 20 January 2013 Available online xxx Keywords: Entrepreneurial opportunities Innovation systems Knowledge-intensive entrepreneurship Partial least squares path modelling a b s t r a c t This paper develops theoretically, methodologically and empirically the notion of the entrepreneurial propensity of innovation system by integrating knowledge intensive entrepreneurship (KIE) and innova- tion system (IS) concepts. It first uses a composite index methodology to measure knowledge intensive entrepreneurship and entrepreneurial opportunities at the national level. It then applies cluster analysis based on composite indexes for the EU countries in order to group them by entrepreneurial opportunities. We also assess the influence of a system’s complementary activities on the emergence of KIE by partial least squares path modelling (PLS-PM) method. PLS demonstrates that the EPIS is statistically sound concept and that KIE is affected by market, technological and institutional opportunities. The paper pro- vides empirical evidence that institutions affect knowledge-intensive entrepreneurial experimentation not directly but via technology and markets. KIE is market driven process; however, its overall effects are determined not solely by market opportunities but by interaction of market with technological and institutional opportunities. Hence, we show that KIE is a systemic feature of IS and that new knowledge, innovation and entrepreneurship are inseparable elements of a dynamic IS. © 2013 Elsevier B.V. All rights reserved. 1. Introduction The dominant perspective on entrepreneurship views it as a nexus of enterprising individuals and valuable opportuni- ties. Individual differences are seen as crucial in the discov- ery of entrepreneurial opportunities. In this perspective (the ‘individual–opportunities nexus’ perspective, I–O), entrepreneur- ship is the key property of individuals which enables them to discover and exploit new opportunities (Miller, 1983; Covin and Slevin, 1989; Lumpkin and Dess, 1996, 2001; Shane and Venkataraman, 2000; Shepherd and DeTienne, 2005; Lumpkin and Lichtenstein, 2005; Wiklund and Shepherd, 2005, 2008; Mitchell and Shepherd, 2010). The philosophical basis of this perspective is rooted in methodological individualism or the idea that ‘social phenomena must be explained by showing how they result from individual actions, which in turn must be explained through refer- ence to the intentional states that motivate the individual actors’ (Heath, 2011:1). Recently, there has been a noticeable shift away from the I–O nexus perspective towards a more eclectic understanding ∗ Corresponding author at: SSEES-UCL, Gower Street, London, WC1E 6BT, UK. Tel.: +44 01273477896. E-mail addresses: s.radosevic@ucl.ac.uk (S. Radosevic), e.yoruk@ssees.ucl.ac.uk (E. Yoruk). of entrepreneurship. For example, Audretsch and Monsen (2008: 47) discuss factors which influence the capacity to generate entrepreneurial activity at different levels. These factors would be personal (individual level), inter-personal (team level), orga- nisational (firm level), and related to networks (industry level). Some recent studies at a meso (industry) level have investigated why some industries host more new growth firms than others and concluded that the reason may lie in the fact that techno- logical innovation is an important determinant of entrepreneurial opportunity and performance (Audretsch et al., 2008; Eckhardt and Shane, 2010). The introduction of databases such as the Global Entrepreneurship Monitor (GEM) has enabled research on the impact of technological entrepreneurship on economic growth to be tested at the levels of country, industry or firm (Yli-Renko et al., 2001; Acs and Varga, 2005; Minniti et al., 2005; Wong et al., 2005). However, despite the use of a multi-level perspec- tive the research on entrepreneurship is methodologically rooted in individuals’ behavioural characteristics. As pointed out by Heath (2011:7) ‘too much emphasis on the action-theoretic perspective can generate its own fallacies . . . (or) assumptions about what must be going on at the aggregate level.’ The explanations of social pro- cesses in terms of individuals alone are, following Hodgson (2007: 222) ‘both prominent and problematic.’ In mainstream perspective entrepreneurship is often framed as stock within production func- tion approach (Audretsch and Keilbach, 2004, 2007). It is assumed that factors are independent of each other. This is quite different 0048-7333/$ – see front matter © 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.respol.2013.01.011