The Review of Economics and Statistics, November 2012, 94(4): 1143–1156

1. ENTREPRENEURSHIP AND THE BUSINESS CYCLEPhilipp D. Koellinger and A. Roy Thurikpresented by GulzatElvung The Review of Economics and Statistics, November 2012, 94(4): 1143–1156

2. Introduction • Little empirical evidence on macroeconomics models of BC abstracting from entrepreneurship • A link between BC and entrepreneurship • Cross-country panel of 22 OECD countries for the period 1972 to 2007 (annual)

3. Aggregate and national levels • Aggregate level: • Do global trends in entrepreneurial activity exist? • How they relate to the cycles of the world economy? • National level: • What is the average relationship between entrepreneurship and the business cycle at the national level?

4. Related literature • Bernanke and Gertler(1989): • Potential share of entrepreneurs in the economy is independent of BC fluctuations. • The fraction of entrepreneurs who get funding and produce is procyclical. • Rampini(2004): • The risk associated with entrepreneurial activity implies that the amount of such activity should be procyclical. • Agents are risk averse.

5. Data • Time series: GDP, Unemployment, Entrepreneurship • Entrepreneurial activity -the share of business owners in the total labor force. • Business cycle – a series of deviations from long-term trends in GDP data (using the Hodrick-Prescott filter with λ=6.25)

6. Aggregate level analysis

7. Aggregate level analysis

8. Aggregate level analysis 2 3 4 1

9. Aggregate level analysis: Methodology • A vector autoregressive model with two lags, VAR(2), including deviations from trends in terms of: • business ownership • real GDP • unemployment • The model is estimated with least squares.

10. Aggregate level analysis: Model

11. Aggregate level analysis: Estimates

12. Aggregate level analysis: Estimates

13. Aggregate level analysis: Granger causality

14. Aggregate level analysis: Granger causality

15. Findings: aggregate level • 1. Global fluctuations in entrepreneurship are an early indicator of the world business cycle: they Granger-cause increases in GDP. • 2. GDP and unemployment cycles do not predict the entrepreneurial cycle.

16. National level analysis:Replicating VAR model for each country

17. National level analysis:Replicating VAR model for each country

18. National level analysis

19. National level analysis

20. Findings: national level • 3. The impact of entrepreneurship on the cycle seems to be weaker than at the aggregate level. • 4. An upswing in the unemployment cycle leads to a subsequent upswing in the entrepreneurship cycle.

21. Differences between aggregate and national levels • (1) Not all entrepreneurs are equal in their performance and motivation. • (2) Business cycles across countries are only weakly correlated. • (3) Thus, aggregating cyclical fluctuations of GDP, unemployment, and entrepreneurship across countries has a dual effect: • It filters out national policy shocks on GDP and unemployment. • It focuses on the subset of entrepreneurs who identify technologies and business opportunities that are globally important

22. Conclusion • The data reject the null hypothesis that the share of entrepreneurs in the population is independent of the cycle. • The results on the link between the entrepreneurship and the business cycle correspond to the two faces of entrepreneurship: • Entrepreneurs are agents of change and economic development, in a Schumpeterian sense • Many business owners perform only marginal activities • The prevalence of the former effect at the level of the world economy suggests an important and much overlooked function of entrepreneurship in the recovery from recessions.

23. About the paper • Interesting, easy to follow and very well exlpained method • Good methodological paper on econometrics of time series • EU level? Nordic countires? • Micro level studies? • Based on GDP correlation between countries - geographical location or some other factors on aggregation?