1 determinants of entrepreneurial engagement levels in europe and us determinants of entrepreneurial...

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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

4

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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Business ownership rate across Business ownership rate across 23 OECD countries in 200223 OECD countries in 2002

0,00

0,02

0,04

0,06

0,08

0,10

0,12

0,14

0,16

0,18

0,20

Luxe

mbo

urg

Nor

way

Den

mar

kS

witz

erla

ndFi

nlan

dS

wed

enFr

ance

Aus

tria

Ger

man

yJa

pan

US

A

UK

Net

herl

ands

Irel

and

Bel

gium

Can

ada

Icel

and

Spa

inN

ew Z

eala

ndP

ortu

gal

Aus

tral

iaIta

lyG

reec

e

Total entrepreneurial activity Total entrepreneurial activity according to GEM 2002according to GEM 2002

0

5

10

15

20

11



12

Stylized factStylized fact

per capita incomeper capita income

Business ownershipBusiness ownership per workforceper workforce

13




14




15



17

ΔUt ΔEt

ΔUt ΔEt

Two relationshipsTwo relationships

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Playing with lagsPlaying with lags

ΔUt

ΔUt+n

ΔEt

ΔEt+n

=0

20

Playing with lagsPlaying with lags

ΔUt

ΔUt+n

ΔEt

ΔEt+n

ΔEt

ΔEt+n

ΔUt

ΔUt+n

>0 <0

shopkeeper Schumpeter

21



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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

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"

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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01020304050607080

Sweden

France

East G

erman

y

Denmar

k

Luxem

bourg

Belgiu

m

Austria

United

Kingdom

Finlan

d

West

Ger

man

y

Spain

Nether

lands

Portugal

Italy

Irela

nd

Greece US

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

0,5

0,6

0,7

0,8

0,9

Nether

lands

Norway

Finlan

d

Icel

and UK

Liech

tenst

ein

Austria

Irela

nd

Denmar

kTota

lUSA

Germ

any

Luxem

bourg

Belgiu

mSpai

n

Sweden

France

Italy

Portugal

Greece

40

Risk toleranceRisk tolerance

0,3

0,4

0,5

0,6

0,7

0,8

Norway

Portugal

Austria

Sweden

Belgiu

m

Luxem

bourg

Germ

any

Liech

tenst

ein

Nether

lands

Greece Ita

ly

Icel

and

Finlan

d

Spain

Denmar

k

France UK

USA

Irela

nd

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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

1 determinants of entrepreneurial engagement levels in europe and us determinants of entrepreneurial...

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