An Econometric Approach to the Determinants of Venture Capital Investment

Amarda Kadia
European University of Tirana


Analysing the success of USA venture capital in the past thirty years many authors believe that Europe lacks behind USA in terms of employment and economic growth mainly due to weaknesses in capital markets, and in particular in the access to risk capital. We investigate through panel data the determinants of venture capital for fourteen European Countries and USA during the years 2007-2019. We regress through fixed effect model four independent variables like Research and Development expenditure in a country, tax rates as measured by World Bank Doing Business Index, credit as a percentage of GDP and economic growth rate. The results shows that Research and Development is an important factor in explaining venture capital investment in a country. This is in support of previous studies that show that higher research and development in a country would attract more venture capital investment. This has a positive coefficient and is significant. Also the results show that taxes are an important factor in explaining venture capital investment in the years 2007-2019. The results show that higher taxes are likely to lead to lower venture capital investment. This affects both supply and demand for venture capital.