The use of GEM data for analyzing the relationship between entrepreneurship and economic growth

1. The use of GEM data for analyzing the relationship between entrepreneurship and economic growth Jolanda Hessels EIM and Erasmus School of Economics July 6, 2010

2. Organizational background EIM: Economic research institute Research program on SMEs and entrepreneurship, www.entrepreneurship-sme.eu Global Entrepreneurship Monitor (GEM) Erasmus School of Economics: Department of Applied Economics Research group “Organization, Entrepreneurship and Strategy”

3. This presentation Discuss process of developing a research paper using GEM data Example of GEM-based research paper: Hessels, J. & van Stel, A. 2010. Entrepreneurship, export orientation and economic growth, Small Business Economics, forthcoming.

4. Set up of a research paper Introduction Literature Data Method Results Discussion and conclusions Implications

5. Introduction Motivation Research questions Approach

6. Introduction Motivation: Potential importance of entrepreneurship and export orientation to economic growth Contribute to different types of literature Research questions: Does entrepreneurship contribute to economic growth? Is there an additional effect for export orientation? Is the effect different for higher versus lower income countries? Approach: literature study and empirical analysis

7. Literature Discuss relevant previous studies Based on literature it is possible to: Determine contribution Develop hypotheses

8. Literature: entrepreneurship Different definitions: Occupational notion Behavioral notion Accepted measures: dynamic, e.g. nascent entrepreneurship, young business ownership (GEM) static, e.g. business ownership rate (COMPENDIA)

9. Literature: entrepreneurship Entrepreneurship and economic growth: Endogenous growth theory Conceptual arguments that entrepreneurship leads through growth through: Diversity Competition Knowledge spillovers Empirical evidence Shift from managed to entrepreneurial economy

10. Literature: export orientation Increasing number of start-ups focus on international markets Export most common international activity for start-ups Export as type of entrepreneurial behavior

11. Literature: export orientation Export orientation and economic growth: Importance of export for firms/national economies Characteristics of early stage exporters: Unique resources Learning advantage of newness Increased diversity, competition and knowledge spillovers especially in higher-income countries?

12. Literature: overview Literature on export and economic growth: limited attention for role of start-ups Literature on entrepreneurship and economic growth: limited insight into role of export orientation and into lower income countries Literature on new venture internationalization and growth: limited insight into macro-economic performance implications

13. Literature: contribution Relationship between entrepreneurship and economic growth taking into account… … export orientation … different groups of countries along their level of economic development Macro-level analysis: incorporate direct and indirect effects

14. Literature: hypotheses Three hypotheses: Hypothesis 1: Positive relationship early-stage entrepreneurship and economic growth Hypothesis 2: Positive relationship between early-stage entrepreneurship and economic growth more pronounced for export-oriented entrepreneurship Hypothesis 3: Positive relationship of export-oriented entrepreneurship with economic growth more pronounced in higher-income countries

15. Data Determine: variables needed availability of data level of analysis time frame

16. Data: overview • National level • Data on entrepreneurship, export orientation and economic growth • Other variables that explain economic growth • Dataset constructed from various sources • Export orientation data only available since 2002

17. Data: dependent variable Economic Growth Growth of GDP (World Economic Outlook Database, IMF) 4 year average

18. Data: independent variables Entrepreneurship: TEA: Total early-stage Entrepreneurial Activity (GEM) Export orientation: Export orientation (>25 % foreign customers (within TEA)) (GEM)

19. Data: control variables Per Capita Income, GDPC (World Economic Outlook Database, IMF) Growth Competitiveness Index, GCI (GCR, World Economic Forum) Lagged GDP growth (World Economic Outlook Database, IMF)

20. Method Select appropriate method and set up based on: Research questions/hypotheses Nature of data/variables Determine estimation sample Take account of endogeneity

21. Method: set up and sample Method and set up: Regression analysis (OLS): different models to test the different hypotheses Year dummies, no country dummies Estimation sample: 34 countries 2002-2005 80 observations, unbalanced panel

22. Method: endogeneity Endogeneity/reversed causality: All independent variables included with a time lag A lagged dependent variable included on the right hand side Robustness check: fitted values, based on DeClercq, Hessels and Van Stel (2008)

23. Method: equation ∆GDPi(t  t-3) = a + b1 TEA richi,t-3 + c1 TEA poori,t-3 + b2 Export richi,t-3 + c2 Export poori,t-3 + d log(GDPCi,t-3) + e GCIi,t-3 + ƒ ∆GDPi(t-4  t-7) + εit

24. Results Look at descriptives first (means, correlations etc.) Focus on main findings

25. Results: descriptives

26. Results: controls, independents

27. Results: higher/lower income

28. Results: robustness check

29. Conclusion and discussion Discuss main findings in light of previous literature Provide rationale for counterintuitive/not readily explained results

30. Conclusion and discussion • Positive impact of entrepreneurship in general • Export orientation makes a significant additional contribution • Difference between higher- and lower-income countries

31. Implications What are the implications of the findings for e.g. managers, policy makers? What are suggestions for further research?

32. Policy implications Stimulate strong export ambitions in higher income countries: Transition of moderate export to high export Growth possibilities and ambition as a selection criterion in export promotion programs

33. Future research • Other aspects of entrepreneurial behavior • Other measures of national (economic) performance • Relation entrepreneurship with economic cycle, unemployment, duration of recessions

34. The use of GEM data for analyzing the relationship between entrepreneurship and economic growth Jolanda Hessels EIM and Erasmus School of Economics July 6, 2010