Putting this in the context of our earlier point regarding the endogenous nature of innovation and entrepreneurship, a firm's absorptive capacity could be the explanation for the degree of learning and entrepreneurship if three conditions are met. First, innovation occurs as a result of cumulative knowledge and learning. second-as long as learning helps to build knowledge-based capacity-learning and knowledge-based capacity are important elements that lead to innovation. Third, there is a strong correlation between innovation and entrepreneur-ship, and such interpretations of innovation could similarly extend to entrepreneurship. Since entrepreneurship is a more abstract concept than innovation, the last condition might come in handy in empirical analysis by giving one the ability to make use of measures of innovation in deriving conclusions about entrepreneurship as well.