Does Venture Capital Accelerate the Inventive Activities of Frontier Technologies? New Evidence from Artificial Intelligence

Abstract

The primary purpose of this thesis is to update the established findings on the complementary relationship between venture capital (VC) investments and federal R&D funds in stimulating inventive activities concerning about artificial intelligence (AI) patenting. Using panel data from 1990 to 2014 on the top 150 MSAs/CMSAs, OLS regression results with fixed-effect estimates implied that i) the supply of VC investment increased the rates of patents, AI patents, and IT patents; ii) calculations of elasticity indicated that federal R&D funds significantly influenced the development of frontier technological inventive activities like AI instead of the traditional information technologies; iii) the complementary effect between VC investments and federal R&D funds consistently exited on the growth of patents, AI patents, and IT patents; and iv) the elasticity of VC investments reached the largest on the rates of AI patents when there is a high presence of federal R&D funds within an MSA/CMSA. Besides, the OLS results remained robust after altering the number of top MSA/CMSA selected, relaxing the searching criteria of AI patents, and changing the patents selection with a subset that contains only USPC classification codes, respectively. However, IV estimates didn’t show robustness to the OLS results with fixed effects estimates.