Venture capital and regional path creation: the medical industry in the Yangtze river delta

Abstract

Path creation is a key concept in evolutionary economic geography. However, although venture capital has been identified in path creation studies, there is still no comprehensive understanding of its role. This study aims to identify the mechanisms through which venture capital supports local industrial paths. To address this, the thesis takes the rapidly developing medical industry in the Yangtze River Delta over the past two decades as its research object, using a mixed-methods analytical approach. Quantitative models are used to answer “when,” “where,” and “what” questions, while qualitative analysis addresses “why” and “how.” The study uses clinical trials innovatively as an indicator of innovation capacity in medical enterprises, thereby filling a gap in medical industry research. Qualitative research includes 28 interviews with venture capital firms, government entities and startups. The findings are as follows:Firstly, venture capital in the Yangtze River Delta’s medical industry shows uneven characteristics that evolve in tandem with regional innovation activities. Macro-institutional reforms under socio-landscape pressures have created three opportunity spaces for regional medical industry development. Different regional policy responses have led to further differentiation in entrepreneurial ecosystems that ultimately shape local venture capital landscapes. Secondly, through propensity score matching and regression analysis, the thesis confirms that venture capital has supported the development of enterprise clinical trials, and validates this at the regional level. Results show that the impact of venture capital incurs time lags and spatial heterogeneity, with geographic distance, syndication and government venture capital promoting innovation to varying degrees. Thirdly, qualitative findings show that venture capital alleviates regional financing constraints by increasing financial capital supply and facilitating the integration of local knowledge resources by promoting talent mobility within and beyond the region. Meanwhile, venture capital engages in corporate governance to improve the institutional legitimacy of technologies through social networks involving the government. By capturing regional niche markets, it builds diversified, place-based industrial portfolios, helping to restructure regional market resources. In this process, the selection effect of venture capital reflects its inherent path dependence, exacerbating regional development imbalances. Finally, qualitative research also shows that geographic distance constrains enterprise activities through trust-building and information asymmetry. Syndication fosters a complementarity between information and resources among actors, mitigating the effect of geographic distance through risk-sharing. Government venture capital displays a local bias, balancing market orientation and different objectives, thus to some extent contributing to local path creation