Social capital, the knowledge filter and innovative start-ups: the Italian evidence

According to the Knowledge Spillover Theory of Entrepreneurship, potential entrepreneurs’ exploitation of knowledge externalities is hindered by social, institutional and individual constraints. We argue that the dimensions of regional Social Capital should moderate these constraints, favouring the exploitation of knowledge embedded in individuals and supporting knowledge-driven innovative start-up creation. In conforming to the instrumental definition of Social Capital, we exploit the Italian ISTAT-AVQ survey to measure its structural and relational dimensions. We conjecture that the structural dimension primarily lessens the Knowledge Filter, whereas the relational dimension strengthens Entrepreneurial Absorptive Capacity. Using the Human Capital endowment as a proxy for local knowledge and computing the start-up birth rate in Italian provinces with the data collected by the Italian Government in the National Registry of Innovation Start-ups from 2014 to 2019, we find that solely relational Social Capital positively moderates the effect of Human Capital on knowledge-driven innovative entrepreneurship. However, with a shallow level of Human Capital endowment, the bonding nature of relational Social Capital prevails, likely hindering Entrepreneurial Absorptive Capacity and refraining propensity to start a new firm. We provide IV estimates to corroborate our findings.