Determinants of entrepreneurial engagement levels in Europe and US
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DeterminantsDeterminants of entrepreneurial of entrepreneurial engagement levels in Europe and USengagement levels in Europe and US
Isabel Grilo and Roy ThurikDG Enterprise (European Commission), GREMARS (Lille) and CORE (Louvain),
CASBEC (Erasmus University Rotterdam), EIM (Zoetermeer) and Max Planck Institute (Jena)
Understanding Entrepreneurship: Issues and Numbers
OECD, October 26 and 27, 2005
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The relation between The relation between entrepreneurship and growthentrepreneurship and growth
• changing role of entrepreneurial activity• definition of entrepreneurship• the dismal science• origins of entrepreneurship• dual causality• intermediary variables
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Two economies: Two economies: Schumpeter revisitedSchumpeter revisited
• Schumpeter I regime: “entrepreneurial economy”– innovating entrepreneur– creative destruction– transformation - exploration
• Schumpeter II regime: “managed economy”– innovation by large and established firms– creative accumulation– rationalisation - exploitation
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The relation between The relation between entrepreneurship and growthentrepreneurship and growth
• changing role of entrepreneurial activity• definition of entrepreneurship• the dismal science• origins of entrepreneurship• dual causality• intermediary variables
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Business ownership rate across Business ownership rate across 23 OECD countries in 200223 OECD countries in 2002
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Total entrepreneurial activity Total entrepreneurial activity according to GEM 2002according to GEM 2002
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The relation between The relation between entrepreneurship and growthentrepreneurship and growth
• changing role of entrepreneurial activity• definition of entrepreneurship• the dismal science• origins of entrepreneurship• dual causality• intermediary variables
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Stylized factStylized fact
per capita incomeper capita income
Business ownershipBusiness ownership per workforceper workforce
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Stylized factStylized fact
per capita incomeper capita income
Business ownershipBusiness ownership per workforceper workforce
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Stylized factStylized fact
per capita incomeper capita income
Business ownershipBusiness ownership per workforceper workforce
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The relation between The relation between entrepreneurship and growthentrepreneurship and growth
• changing role of entrepreneurial activity• definition of entrepreneurship• the dismal science• origins of entrepreneurship• dual causality• intermediary variables
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ΔUt ΔEt
ΔUt ΔEt
Two relationshipsTwo relationships
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Playing with lagsPlaying with lags
ΔUt
ΔUt+n
ΔEt
ΔEt+n
=0
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Playing with lagsPlaying with lags
ΔUt
ΔUt+n
ΔEt
ΔEt+n
ΔEt
ΔEt+n
ΔUt
ΔUt+n
>0 <0
shopkeeper Schumpeter
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The relation between The relation between entrepreneurship and growthentrepreneurship and growth
• changing role of entrepreneurial activity• definition of entrepreneurship• the dismal science• origins of entrepreneurship• dual causality• intermediary variables
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Back to the present paperBack to the present paper
• determinants
• definition– (process=conception; gestation; infancy;
adolescence; maturity; decline)
• cross-section
• no time series
• given covariates
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What do we do?What do we do?
• different engagement levels 7
• individual data 20,000
• multi-level 19
• eclectic flavor 8
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Determinants of entrepreneurshipDeterminants of entrepreneurship
• three giants (Schumpeter, Kirzner, Knight)
• economic theory (income choice)
• empirical literature
• our set-up
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Theory of income choiceTheory of income choice
• Ability - entrepreneurial efficiency– Jovanovic, 1982 and 1994; Lucas, 1978; Murphy, Shleifer and Vishny,
1991; Holmes and Schmitz, 1990 and Lazear, 2004
• Risk - risk attitudes– Kihlstrom and Laffont, 1979 and Parker, 1996 and 1997
• Liquidity constraints - polymorphe– Lucas, 1978; Jovanovic, 1982; Evans and Jovanovic, 1989 and Hurst and
Lusardi, 2004
• Eclectic add-ons– Bates, 1990; Blanchflower, 2004; Blanchflower and Meyer, 1994;
Blanchflower and Oswald, 1998; Blau, 1987; Douglas and Shepherd, 2002; Evans and Leighton, 1989 and 1990; Grilo and Irigoyen, 2005; Grilo and Thurik, 2005; Lin, Picot and Compton, 2000; Rees and Shah, 1986; Reynolds, 1997; Wagner, 2003 and Wit and van Winden, 1989
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Empirical literatureEmpirical literature
• gender, age, educational attainment• financial situation• employment status• experience• minority, immigrant behavior• family firm effects• attitudes• perceptions
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Empirical literatureEmpirical literature
• gender, age, educational attainment• financial situation• employment status• experience• minority, immigrant behavior• family firm effects• attitudes (preference; risk tolerance)• perceptions (adm. complexity; financial constraints)
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An example using Eurobarometer 2002/3An example using Eurobarometer 2002/3
• Aim– Disentangle the role of demographic and perception variables
and of country specific effects on various measures of entrepreneurship
• Multinomial logit using– 20,000 observations
– 19 countries
– 8 variables
– 7 engagement levels
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The seven entrepreneurial The seven entrepreneurial engagement levelsengagement levels
Have you started a business recently or are you taking steps to start one? “It never came to your mind"“No, you thought of it or had already taken steps to start a business but gave up"“No, but you are thinking about it"“Yes, you are currently taking steps to start a new business"“Yes, you have started or taken over a business in the last 3 years and still active"“Yes, you started or took over a business more than 3 years ago and still active" “No, you once started a business, but currently you are no longer an entrepreneur"
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Percentages per engagement level per countryPercentages per engagement level per country
Never considered Gave up Thinking
Taking steps Business<3yrs
Business>3 yrs No longer No of Obs.
Belgium 68 9 8 2 2 5 6 853
Denmark 44 13 18 3 3 9 10 819
Germany 50 13 16 3 4 7 7 1297
Greece 46 11 17 2 4 8 12 875
Spain 60 8 15 2 2 6 7 1129
France 61 14 11 1 1 4 7 1337
Ireland 52 7 21 5 4 7 5 856
Italy 62 7 9 3 2 7 10 1362
Luxembourg 60 16 8 2 2 6 6 814
Netherlands 56 11 10 1 3 9 9 847
Austria 54 8 20 2 4 7 5 808
Portugal 61 9 11 3 3 6 7 815
Finland 54 12 11 2 3 10 9 839
Sweden 66 5 9 3 4 7 6 712
UK 53 8 15 2 5 7 10 1149
Iceland 44 5 12 3 6 18 13 536
Norway 50 12 7 2 5 12 11 733
Liechtenstein 48 13 12 4 5 12 5 790
US 49 3 23 8 7 5 5 1050
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Percentages per engagement level per countryPercentages per engagement level per country
Never considered Gave up Thinking
Taking steps Business<3yrs
Business>3 yrs No longer No of Obs.
Belgium 68 9 8 2 2 5 6 853
Denmark 44 13 18 3 3 9 10 819
Germany 50 13 16 3 4 7 7 1297
Greece 46 11 17 2 4 8 12 875
Spain 60 8 15 2 2 6 7 1129
France 61 14 11 1 1 4 7 1337
Ireland 52 7 21 5 4 7 5 856
Italy 62 7 9 3 2 7 10 1362
Luxembourg 60 16 8 2 2 6 6 814
Netherlands 56 11 10 1 3 9 9 847
Austria 54 8 20 2 4 7 5 808
Portugal 61 9 11 3 3 6 7 815
Finland 54 12 11 2 3 10 9 839
Sweden 66 5 9 3 4 7 6 712
UK 53 8 15 2 5 7 10 1149
Iceland 44 5 12 3 6 18 13 536
Norway 50 12 7 2 5 12 11 733
Liechtenstein 48 13 12 4 5 12 5 790
US 49 3 23 8 7 5 5 1050
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Status and Status and preferencepreference of active of active populationpopulation
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Perception of lack of financial Perception of lack of financial supportsupport
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and UK
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Risk toleranceRisk tolerance
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Norway
Portugal
Austria
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MethodMethod
• Categories of dependent variable– Level of engagement in entrepreneurial activity
• Multinomial logit– Non-linear model for estimating categorical dependent
variables
• Eight explanatory variables plus country dummies• How to read the table of estimation results?
– Effect on odds of unit change in explanatory variable– Odds relative to base category (“never came to your mind”)
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Multinomial logitMultinomial logit
Gave up
Thinking Taking steps
Business <3 years
Business >3 years
No longer
Men 1.505 1.517 1.735 1.930 2.512 1.692
Age 0,998 0,962 0,956 0,986 1.017 1.040
Low education 0,823 0,724 0,886 0,581 0,666 0,969
High education 1.332 1.439 1.782 1.601 1.420 1.000
Preferences 2.414 4.538 6.143 8.366 9.265 2.650
Lack finance 1.028 0,919 0,954 0,872 0,876 0,937
Complexities 1.002 1.027 0,757 0,699 0,734 0,786
Risk tolerance 1.195 1.349 1.222 1.438 1.279 1.175
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GenderGender
• Relative to “not thinking about it” the odds of any other option are higher for men
• This effect is stronger for “having an active business” than for any other category
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Administrative complexitiesAdministrative complexities
• Perception of administrative complexities has no effect on the odds of “currently thinking”, “gave up” or ”taking steps” relative to “never thought about it”
• Perception of administrative complexities plays a negative role for higher levels of “engagement”
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Lack of financial supportLack of financial support
• Perception of lack of administrative support has no discriminative effect across the categories
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European countries and USEuropean countries and US
• European countries have lower odds than the US for levels of engagement up to “having a young business”
• European countries have higher odds than the US for the category “having an older business”
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ConclusionsConclusions
• Gender differential - act at both levels – women’s attitudes – obstacles specifically faced by women
• Administrative complexities – important to address this obstacle
• Financial support: learn more before spending money in the policy domain
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Determinants and consequences of Determinants and consequences of entrepreneurshipentrepreneurship
• engagement levels
• U-shape and country differences
• occupational choice
• preferences
• what is the market?
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DeterminantsDeterminants of entrepreneurial of entrepreneurial engagement levels in Europe and USengagement levels in Europe and US
Isabel Grilo and Roy ThurikDG Enterprise (European Commission), GREMARS (Lille) and CORE (Louvain),
CASBEC (Erasmus University Rotterdam), EIM (Zoetermeer) and Max Planck Institute (Jena)
Understanding Entrepreneurship: Issues and Numbers
OECD, October 26 and 27, 2005