The Silicon Valley Syndrome

Abstract

How does expansion in the high-tech sector influence the broader economy of a region? We demonstrate that an infusion of venture capital in a region appears associated with: (i) a decline in entrepreneurship, employment, and average incomes in other industries in the tradable sector; (ii) an increase in entrepreneurship and employment in the non-tradable sector; and (iii) an increase in income inequality in the non-tradable sector. An expansion in the high-tech sector therefore appears to lead to a less diverse tradable sector and to increasing inequality in the region.

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