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Determinants of entrepreneurial engagement levels in Europe and US

Determinants of entrepreneurial engagement levels in Europe and US. Isabel Grilo and Roy Thurik DG Enterprise (European Commission), GREMARS (Lille) and CORE (Louvain), CASBEC (Erasmus University Rotterdam), EIM (Zoetermeer) and Max Planck Institute (Jena)

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Determinants of entrepreneurial engagement levels in Europe and US

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  1. Determinantsof entrepreneurial engagement levels in Europe and US Isabel Grilo and Roy Thurik DG 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

  2. The relation between entrepreneurship and growth • changing role of entrepreneurial activity • definition of entrepreneurship • the dismal science • origins of entrepreneurship • dual causality • intermediary variables

  3. Two economies: Schumpeter 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

  4. The relation between entrepreneurship and growth • changing role of entrepreneurial activity • definition of entrepreneurship • the dismal science • origins of entrepreneurship • dual causality • intermediary variables

  5. Business ownership rate across 23 OECD countries in 2002

  6. Total entrepreneurial activity according to GEM 2002

  7. The relation between entrepreneurship and growth • changing role of entrepreneurial activity • definition of entrepreneurship • the dismal science • origins of entrepreneurship • dual causality • intermediary variables

  8. Stylized fact Business ownership per workforce per capita income

  9. Stylized fact Business ownership per workforce per capita income

  10. Stylized fact Business ownership per workforce per capita income

  11. The relation between entrepreneurship and growth • changing role of entrepreneurial activity • definition of entrepreneurship • the dismal science • origins of entrepreneurship • dual causality • intermediary variables

  12. ΔUt ΔEt Two relationships ΔUt ΔEt

  13. ΔUt ΔEt ΔUt+n ΔEt+n Playing with lags =0

  14. ΔUt ΔUt ΔEt ΔEt ΔUt+n ΔUt+n ΔEt+n ΔEt+n Playing with lags >0 <0 shopkeeper Schumpeter

  15. The relation between entrepreneurship and growth • changing role of entrepreneurial activity • definition of entrepreneurship • the dismal science • origins of entrepreneurship • dual causality • intermediary variables

  16. Back to the present paper • determinants • definition • (process=conception; gestation; infancy; adolescence; maturity; decline) • cross-section • no time series • given covariates

  17. What do we do? • different engagement levels 7 • individual data 20,000 • multi-level 19 • eclectic flavor 8

  18. Determinants of entrepreneurship • three giants (Schumpeter, Kirzner, Knight) • economic theory (income choice) • empirical literature • our set-up

  19. Theory 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

  20. Empirical literature • gender, age, educational attainment • financial situation • employment status • experience • minority, immigrant behavior • family firm effects • attitudes • perceptions

  21. Empirical 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)

  22. An 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

  23. The seven entrepreneurial engagement levels Have you started a business recently or are you taking steps to start one? “Itnever 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"

  24. Percentages per engagement level per country

  25. Percentages per engagement level per country

  26. Status and preference of active population

  27. Perception of lack of financial support

  28. Risk tolerance

  29. Method • 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”)

  30. Multinomial logit

  31. Gender • 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

  32. Administrative 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”

  33. Lack of financial support • Perception of lack of administrative support has no discriminative effect across the categories

  34. European 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”

  35. Conclusions • 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

  36. Determinants and consequences of entrepreneurship • engagement levels • U-shape and country differences • occupational choice • preferences • what is the market?

  37. Determinantsof entrepreneurial engagement levels in Europe and US Isabel Grilo and Roy Thurik DG 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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