Penetrating the ``knowledge filter' in regional economies

New knowledge in the form of products, processes and organizations leads to opportunities that can be exploited commercially. However, converting new ideas into economic growth requires turning new knowledge into economic knowledge that constitutes a commercial opportunity. A model introduces a ``knowledge filter' between new knowledge and economic knowledge and identifies both new ventures and incumbent firms as the mechanism that reduces the knowledge filter and increases regional growth. This paper tests the hypotheses that new venture creation is a better mechanism than the absorptive capacity of incumbent firms for converting new knowledge into economic knowledge. Our results support the contention that new venture creation is a superior method of penetrating the regional ``knowledge filter' than incumbent firms. The authors contributed equally to the article. We thank Attila Varga, Elaine Mosakowski, Jaehwan Kim, Tom Dean, Dean Shepherd, Joy Godesiabois, Mike Haynie, A. Mushfiq Mobarak, David Audretsch, Saras Sarasvarthy, David Deeds, and the participants at the Summer Institute at the Max Planck Institute for Study into Economic Systems for helpful comments and critiques. A version of this paper was presented at the 2004 Babson Kauffman Entrepreneurship Research Conference in Glasgow, Scotland. We also gratefully acknowledge the funding support provided by the Robert H. and Beverly A. Deming Center for Entrepreneurship at the Leeds School of Business, University of Colorado.