new firm creation: a global assessment of national factors
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04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 1
New Firm Creation: A Global Assessment of National Factors
VI International Workshop of Research Based on GEM
Universidad de Granada, CeutaCeuta, Spain
29 March 2011
Paul D ReynoldsHoward Hoffman Distinguished Scholar of Management and Entrepreneurship
George Washington University[PaulDavidsonReynolds@gmail.com]
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 2
What national factors are associated with measures of business creation?
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 3
Nascent Enterprise
New Business
?
Personal Attributes•Age•Gender•Education•Work Experience•Confidence in ability to create buss•Fear of failure
Personal Context: Support for Entrepreneurship, Potential for Financial Support
National ContextCharacteristics of the workforce, national cultural & social values, current levels, structure, and change in economic activity, structure of business population, sector focus, centralized national control of business activity
Total Entrepreneurial Activity
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 4
National Measures of Business Creation
• Total Entrepreneurial Activity – All, Opportunity, Necessity – Men, Opportunity, Necessity– Women, Opportunity, Necessity– High potential: Technology Sector, Market Impact, Job Growth,
Export Oriented– Economic Sectors: Extractive, Transformative, Business
Service, Consumer Oriented
• Nascent Entrepreneurs– All, Opportunity, Necessity
• New Firm Owner/Managers – All, Opportunity, Necessity
• Twenty-three different measures
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 5
Dependent Variable Sources
Detailed APS Data GEM 1998 -2008 Harmonized FileAlgeria, Jordan, Lebanon, Morocco, Syria, West Bank/Gaza,
Yemen for 2009 Summary Data from GEM Coordination 2009 file
All other 2009 countries Total sample
77 countries About 1.1 million cases
Harmonized procedures for all transformation across all yearsNational values are all years for which data available
Computed for year, the averaged across the years Missing data on some variables for countries
Detailed data missing in 2009 GEM aggregate file
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 6
TEA Active Prevalance Rates Average: 2000-2009
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
#/1
00
18
-64
Yrs
Old
[9
5%
CI]
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Necessity Entrepreneurs
• Across the countries– About one-third of the activity
• Higher proportion among countries with higher prevalence rates – Tend to be the developing countries
• Varies over time – About 10% change in 12 month follow-up interview – From necessity to opportunity
• New venture looks promising
– From opportunity to necessity • Other work options look less promising
• To ignore necessity entrepreneurs is to ignore a major portion of the phenomena
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 8
TEA Active Prevalence by Contextual Motivation: 2001-2009
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
#/1
00
18
-64
Ye
ars
Old
Opportunity Necessity
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 9
Prevalence of TEA Participation by World Region and Motivation
0
2
4
6
8
10
12
14
16
18
20
#/10
0 P
erso
ns 1
8-64
Yea
rs O
ld
Necessity 1.24 .72 1.61 .85 1.48 2.47 3.50 5.70 5.91 8.29
Opportunity 3.37 4.31 4.34 8.10 8.74 3.92 9.86 8.80 12.62 10.89
Asia:Developed [5]
Western Europe:Developed [18]
East Europe:Developed [3]
Middle East:Develo
ped [2]
North America,
Oceania:De
East Europe:Developing [10]
Middle East:Develo
ping [9]
Asia:Developing [7]
Latin America:De
veloping
Africa: Developing
[3]
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 10
Type of business activity #/100 Adults Corr w/
TEA Overall
TEA Overall 11.5 1.0
Nascent Entrepreneurs 6.6 0.88
New Firm Owner-managers 5.4 0.85
TEA Overall: Males 13.5 0.99
TEA Overall: Females 9.4 0.97
TEA ventures: High Tech Sectors 1.4 0.68
TEA ventures: Market impact: medium to high 1.6 0.88
TEA Ventures: Growth oriented: 20+ jobs in five years 1.0 0.33
TEA Ventures: Export oriented: 25+ % internat’l customers 0.8 0.28
TEA ventures: extractive sectors 0.6 0.73
TEA ventures: transformative 2.4 0.90
TEA ventures: business services 1.2 0.27
TEA ventures: consumer oriented 4.6 0.97
Prevalence Rates, Selected Firm Births
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Dependent Variable Frequency Distributions
• High skewed due to high values for small number of countries in the sample
• Log 10 transform creates normal distributions • Log10 used in all regression models
– Result is normally distributed residuals – Indication that data set meets most assumptions of
the model
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National Case Weights
• If weight of one, all countries have equal impact on assessment • Emphasizes Western European business creation
– 18 of 75 GEM countries Western European
• Total sample of 75 countries – 3.2 billion persons 18-64 years of age – More activity in larger countries
• Create weights based on proportion of total population represented in each country– Sum of the weights = 75– Tonga [0.0015] – China [21.10, 14,333 times Tonga]
• Population weighted analysis give emphasis to developing countries– Weights over 1 for Russia, Brazil, Indonesia, India, and China– Weights over 1 for Germany, Japan, and U.S.
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Independent Variables: Economic Characteristics
Source Yrs TEA r
[no wt]
TEA r
[pop wt]
GDP per capita WEO 2009 -.61 -.57
GDP per capita increase
WEO 2005-2008
0.08
[NS]
0.28
Human population increase
US Census
1999-2009
0.48 0.39
Income inequality: GINI index
Solt (2009)
2000-2008
0.61 0.40
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 14
Independent Variables: Structural Features
Source Yrs TEA r
[no wt]
TEA r
[pop wt]
Firm size: enterprises/
100 adults
GEM 2000-2009
0.71 0.78
Agriculture workers/
all workers
World Bank
2000-2007
0.59 0.63
Industry workers/
all workers
World Bank
2000-2007
-.42 -.59
Service workers/
all workers
World Bank
2000-2007
-.47 -.55
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 15
Independent Variables: Centralized Control of Economic Activity (1/2)
Source Yrs TEA r
[no wt]
TEA r
[pop wt]
Per cent workers in non-private sectors
ILO and World Bk
2005 -.42 -.46
Government expenses as percent of GDP
Heritage Found
2009 -.49 -.60
Ease of business registration index
WB Doing Business
2009 0.52 0.46
Greater commercial legal costs index
WB Doing Business
2009 0.29 0.18
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Independent Variables: Centralized Control of Economic Activity (1/2)
Source Yrs TEA r
[no wt]
TEA r
[pop wt]
Recognition of physical property rights index
IPR Index Report
2009 -.49 -.40
Recognition of intellectual property rights index
IPR Index Report
2009 -.57 -.64
Perceived Corruption Transparency Int’al
2005 0.51 0.53
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 17
Independent Variables: Population Capacity for Business Creation
Source Yrs TEA r
[no wt]
TEA r
[pop wt]
Entrepreneurial ready adults prevalence index [3 items]
GEM 2000-2009
0.70 0.72
Percent 25-44 yrs old persons in population
US Census 2007 -.36 -.35
Percent adults with high school degree or more educ
Barro & Lee 2000 -.35 -.35
Men: % labor force participation
World Bank 2007 0.43 0.60
Women: % labor force participation
World Bank 2007 0.00
[NS]
0.09
[NS]
Unemployment rate World Bank 2000-2008
-.03
[NS]
-.12
[NS]
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 18
Independent Variables: National Cultural and Social Norms
Source Yrs TEA r
[no wt]
TEA r
[pop wt]
Prevalence of Informal Investors
GEM 2000-2009 0.70 0.53
Cultural Support for Entrepreneurship [3 items]
GEM 2000-2009 0.40 0.55
Traditional versus Secular/Rational Values
World Values
Survey
1981-2006 -.62 -.26
Survival versus Self-Expressive Values
World Values Survey
1981-2006 -.13
[NS]
-.24
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Comments on Correlation Patterns
• Most correlations about the same regardless of weighting
• Several measures retained despite low correlations – Female labor force participation– Survival versus self-expressive values – Unemployment rate
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R*R = 0.50
LogTEA R*R = 0.54
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Comment on GDP per Capita
• Widely used as summary measure of the level of economic development
• Quadratic relationship accounts for 50% (or more) of variance in level of TEA overall
• But hard to know how to interpret– Assumes all countries have same “development trajectory”– Very crude indicator, not clear what national features are
associated with differences – Useless for policy development – Actually a measure of outcomes expected from more business
creation
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 22
World Values Survey
• Collected data on 80+ countries– Data on 64 GEM countries
• Surveys completed over 5 waves: – 1981, 1990, 1995, 2000, 2006
• Two major dimensions, not correlated • Traditional versus secular-rational values
– Emphasis on religion, obedience, respect for authority, national pride versus opposite
• Survival versus self-expressive values– Emphasis on economic security, avoiding political
involvement, care in trusting others versus opposite
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 23
Cultural Values Reinterpreted
• Traditional focus associated with – Focus on work, husband as provider – Care of family a major responsibility – Respect for authority
• No expectation of government assistance • Increased self-reliance regarding economic status
• Survival focus associated with – Dissatisfaction with income – Security, good income a major priority – Working hard more important than leisure
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 24
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 25
World Region Classification Region GDP/Capita < $20,000 GDP/Capita < $20,000
North America, Oceania
AU, CA, NZ, US
Western EU, Israel AT, BE, DE, FI, FR, DE, GR, IS, IL, IE, IT, NL, NO, PT, ES, SE, SW, UK
Central, Eastern EU BA, HR, KZ, LV, MK, PL, RO, RU, RS
CZ, HU, SI
Asia CH, IN, ID, MY, PH, TH, TO
HK, JP, KR, SG, TW
Middle East, North Africa
DZ, EG, IR, JO, LB, MA, SY, TN, TR, PS, YE
SA, AE
Latin America, Caribbean
AR, BO, BR, CL, CO, DO, EC, GT, JM, MX, PA, PE, UY, VE
Sub-Sahara Africa AO, ZA, UG
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 26
World Regions
• Major basis for replacing missing values for Independent Variables ONLY– Many cross national data sets are “incomplete” for
smaller, low income countries
• Missing value replace with mean value for world region cells– Not much of a problem for North America, Oceania or
Western Europe, Israel – Not used for any GEM based measures
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 27
Linear Additive Regression Model Outcomes (1/3)
Dependent Variable Weighted by Population
Explained Variance
Significant Variables
TEA Overall [n=75] 87.9 % 7
TEA Opportunity [n=75] 87.2% 8
TEA Necessity [n=75] 86.9 % 6
Nascent Overall [n=765 82.3 % 5
Nascent Opportunity [n=74] 75.0% 5
Nascent Necessity [n=74] 78.7% 5
New Firm Overall [n=74] 92.9 % 7
New Firm Opportunity [n=74] 92.0 % 7
New Firm Necessity [n=74] 86.2 % 5
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 28
Linear Additive Regression Model Outcomes (2/3)
Dependent Variable Weighted by Population
Explained Variance
Significant Variables
TEA High Tech Sector [n=73] 63.3 % 5
TEA Market Impact [n=74] 71.6 % 4
TEA Job Growth [n=74.3] 80.5 % 6
TEA Export Oriented [n=74] 66.0 % 7
TEA Extractive [n=73] 85.8 % 7
TEA Transformative [n=73] 86.9 % 6
TEA Business Service [n=73] 63.4 % 5
TEA Consumer Oriented [n=73] 85.1 % 4
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 29
Linear Additive Regression Model Outcomes (3/3)
Dependent Variable Weighted by Population
Explained Variance
Significant Variables
TEA Male: All [n=75] 82.5 % 5
TEA Male: Opportunity [n=75] 84.5 % 7
TEA Male: Necessity [n=75] 79.9 % 5
TEA Female: All [n=75] 88.7 % 8
TEA Female: Opportunity [n=75] 86.5 % 8
TEA Female: Necessity [n=75] 81.7 % 7
National Features in Models [1/2]
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 30
Variable description Negative Positive Total
National Index: Readiness for Entrepreneurship 18 18
All enterprises/100 Persons 18-64 Yrs Old 15 15
Percent Women 15-64 Yrs in Labor Force:2007 13 13
Prevalence of informal investors: #/100 Persons 13 13
Traditional vs. Secular/Rational Values 10 10
Per cent Total Population 25-44 Yrs old 9 9
Income Inequality: 2000-2008 Average 9 9
Business Start Regulation Index (Ratio) 5 1 6
Percent HS Degree or more 15+ years 5 5
Per cent change GDP per capita: 2003-08 1 4 5
National Index of Support for Entrepreneurship 2 3 5
Per cent government workers 3 2 5
National Features in Models [2/2]
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 31
Variable description Negative Positive Total
Percent Men 15-64 Yrs in Labor Force:2007 2 2 4
Unemployment Rate: Avg 2000-2008 3 1 4
Physical property rights recognition: Index 4 4
GDP per Capita: PPP International Dollars: 2009 3 3
Survival vs self-expressive values 1 2 3
Per cent agricultural workers: 2009 2 2
Costs for commercial legal costs Index 2 2
Gov spending as per cent of GDP 1 1 2
Annual Pop Growth: 1999-2009 (Avg) 1 1 2
Per cent service workers: 2009 1 1
Intellectual property rights recognition: Index 1 1
Perceived corruption index: 2005 1 1
Per cent industry workers: 2009 [not included]
Ranking of Major Categories• Population Capacity for Business Creation [21/23 models]
– Readiness for Entrepreneurship [18]
– Percent women in the labor force [13]
– Percent population 25-44 years of age [9]
• National Cultural and Social Support [19/23 models]– Prevalence of informal investors [13]
– Emphasis on traditional values [10]
• Structural Features of the Economy [17/23 models]– Presence of small enterprises [15]
• Centralized Control of Economic Activity [14/23 models]– Business Start Regulation Index [5/1]
– Per cent of all workers in government [2/3]
• Economic Characteristics [13/23 models]– Income inequality [9]
– Per cent change GDP per capita [1/4]
– GDP per Capita [3]
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 32
World Regions: Business Creation
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 33
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 34
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 35
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 36
Global Regions and Business Creation Factors
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 37
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Policy Implications • No “best policies” will fit all situations• Improving capacity of individuals to pursue business
creation – Takes resources, but might be done quickly—in a generation– Focus on training and education
• Changing national cultural, social norms – Deserves attention, but a long term project
• Decentralize economic decision making – Can change some features quickly (business registration) – But reflects basic social contract, political philosophy underlying
the entire society, hard to adjust
• Economic characteristics, economic structure – Basically the consequence or more business creation – May be difficult to adjust, consequence of business creation
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 39
Research Lacuna
• Longitudinal Studies of Business Creation – Available in nine countries
• Only one in a developing country (China) and that in urban areas
– Provide a wealth of information about the nature of and success associated with the start-up process
– Difficult to design, relatively expensive, and require a research team commitment for 4-6 years
PANEL STUDIES IN DEVELOPING COUNTRIES WOULD MAKE A MAJOR CONTRIBUTON
04/21/23 02:06 AM Spain_VI_GEM_ResConf_29Mar11 40
Selected References
• ‘http://www.gemconsortium.org”• ‘http://www.psed.isr.umich.edu’.• Barro, Robert J . and Jong-Wha Lee. 2000. International Data on Educational Attainment: Updates and
Implications. Cambridge, MA: Harvard University, Center for international Development. Working Paper 42. • Bosma, Niels and Jonathan Levie. 2010. Global Entrepreneurship Monitor: 2009 Executive Report. Global
Entrepreneurship Research Association. • Gartner, W.B., K.G. Shaver, N. M. Carter, and P. D. Reynolds (Eds). (2004). Handbook of Entrepreneurial
Dynamics: The Process of Business Creation. Thousand Oaks, CA: Sage Publications. • Inglehart, Ronald and Christian Welzel. 2005. Modernization, Cultural Change and Democracy. New York,
Cambridge University Press. • La Porta, Rafael, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2008. The Economic Consequences of Legal
Origins. Journal of Economic Literature 46(2):285-332. • Reynolds, Paul D. (2007). New Firm Creation in the U.S.: A PSED I Overview. Hanover, MA: now Publishers, Inc. • Reynolds, Paul D. (2010) MENA Region Entrepreneurship. Cairo, Egypt: International Development Research
Centre Report. • Reynolds, Paul, Niels Bosma, Erkko Autio, Steve Hunt, Natalie De Bono, Isabel Servais, Paloma Lopez-Garcia,
and Nancy Chin. (In 2005) Global Entrepreneurship Monitor: Data Collection Design and Implementation: 1998-2003. Small Business Economics: 24: 205-231.
• Reynolds, Paul D. and Richard T. Curtin. (2008). Business Creation in the United States: Entry, Startup Activities and the Launch of New Ventures. Chapter 8 in U.S. Small Business Administration. The small Business Economy: A Report to the President. Washington, DC: U.S. Government Printing Office (in press).
• Reynolds, Paul D. and Richard Curtin (2008). Business Creation in the United States: Panel Study of Entrepreneurial Dynamics II Initial Assessment. Foundations and Trends in Entrepreneurship. V(3):155-307.
• Reynolds, Paul D. and Richard T. Curtin (Eds). (In press). New Business Creation: An International Perspective. New York City, NY: Springer.
• Reynolds, Paul D. and Richard T. Curtin (Eds). (2009). New Firm Creation in the United States: Preliminary Explorations with the PSED II Data Set. New York City, NY: Springer.
• Solt, Frederick. 2009. Standardizing the World Income Inequality Database. Social Science Quarterly. 90(2):231-242.
• World Bank. 2009a. Doing Business 2010. New York: Palgrave MacMillan.
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