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The Impact of Entrepreneurial Activity on Economic Growth: A Comparative Study

This paper explores the relationship between entrepreneurial activity and economic growth, focusing on the different sectors and stages of development. Using data from the Global Entrepreneurship Monitor, the study analyzes the contribution of entrepreneurs across countries and industries.

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The Impact of Entrepreneurial Activity on Economic Growth: A Comparative Study

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  1. Entrepreneurial activity, industry orientation and economic growth • Jaap Bos • (Maastricht University, Faculty of Economics and Business) • Jolanda Hessels • (Erasmus School of Economics and Panteia/EIM) • Mark Sanders • (Utrecht School of Economics) Peter van der Zwan (Panteia/EIM and Erasmus School of Economics) IECER 2014-conference 12-13-14 February, Chur, Switserland

  2. Background Economists’ Interest in Economic Growth: • Development Economics: • Growth Regimes e.g. Bos et al. (2009), Audretsch et al. 2013 • Endogenous Growth Theory: • Proximate and Fundamental Causes e.g. Acemoglu (2009), Weil (2011) • Entrepreneurship, Economic Growth and Development • “It has long been recognized that the entrepreneurial function is a vital component in the process of economic growth” , Baumol (1968), p. 65. • Generally a positive impact on growth, employment etc. found (Versloot et al. 2007) • But not all entrepreneurship contributes equally and everywhere. IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 2 of 17

  3. Entrepreneurship and growth • Traditional neoclassical growth theory (Solow, 1957) • Endogenous growth theory (Aghion and Howitt, 1991) • Models of entrepreneurship and growth (Schmitz, 1989; Murphy et al., 1991; Iyigun and Owen, 1999; Acs and Sanders 2012) • Knowledge spillover theory of entrepreneurship (Audretsch and Keilbach, 2004; Acs et al. 2009; Acs and Sanders 2013) • Empirical studies: positive relationship entrepreneurship with economic growth in higher income countries (Wennekers and Thurik,1999; van Stel et al., 2005) IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 3 of 17

  4. Views on entrepreneurship • Market theory: static equilibrium, no profit opportunities, no room for entrepreneurship • Market process theory: disequilibrium, profit opportunities: • Kirzner (1973): entrepreneurs bring markets in equilibrium by pursuing opportunities (alertness, judgment) • Schumpeter (1934): entrepreneurs bring markets out of equilibrium by doing something new (innovation). • Entrepreneurs act as agents of change by changing output and prices or by doing something new IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 4 of 17

  5. Views on entrepreneurship Different functions entrepreneurs (Hébert & Link, 2009); An entrepreneur is: • … a person who assumes risk associated with uncertainty • … an innovator • … a decision maker • … an industrial leader • … an allocator of resources among alternative uses • … an organizer/coordinator of economic resources • … an arbitrageur • … the owner of an enterprise • … an employer of factors of production • … a person who supplies financial capital • … a manager or superintendent IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 5 of 17

  6. Entrepreneurship and growth How entrepreneurship contributes to growth: • Schumpeterian Creative Destruction • Knowledge Spillover Theory of Entrepreneurship • Self-Employment and Self-Realization • Entrepreneurs create value directly and through diversity, knowledge spillovers and competition in markets IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 6 of 17

  7. Types of entrepreneurship Heterogeneity in entrepreneurship: • Employers versus own account workers • Opportunity versus necessity entrepreneurs • Innovators versus imitators • Etc… IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 7 of 17

  8. Types of entrepreneurship and growth This paper: • Explore if contribution of entrepreneurs differs by sector of activity. • Explore if contribution of entrepreneur differs across industries and countries by development stage. IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 8 of 17

  9. Data Global Entrepreneurship Monitor (GEM): • 9 years (2001-2009) • GEM from 1999 onwards; 29 countries in total in 2001; 55 in 2009 • 78 countries for which TEA rates are known • Total early-stage entrepreneurial activity • 20 factor-driven, 27 efficiency-driven, 31 innovation-driven • 13 countries participated each year (e.g., Belgium, the Netherlands, UK, US); factor-driven economies mostly only once IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 9 of 17

  10. TEA rates for UK, NL, US, BE IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 10 of 17

  11. Decomposition of TEA IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 11 of 17

  12. Empirical Strategy • Empirical growth literature • Cross-country differences  pooled OLS rather than panel regression with fixed or random effects. • Annual GDP growth is regressed on TEA rates in the previous year and usual controls. • First cut at the data. • Correlations, not causality. • Correlates by type (3) and development stage (3) • What activity correlates with growth in what countries? IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 12 of 17

  13. For all countries and for all years (n=152) • Growth is autocorrelated • There is convergence or more precisely, reversion to the trend. • Educational levels insignificant IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 13 of 17

  14. On TEA: • TEA negative, interaction with GDP/cap positive • TEA negative in FD and ED, positive (insig) in ID • TEA positive in ID and insignificant in FD and ED when controlling for sector composition IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 14 of 17

  15. Distinguishing between type and stage of development • Factor-driven economies included (n=144): • TEA-low negative, TEA-high positive • Efficiency-driven economies (n=33) • Only high-tech TEA (1%) positive significant, others insignificant. • Innovation-driven economies (n=80) • Only high-techTEA (10%) positive significant, others insignificant. Coefficient about 3 times lower. IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 15 of 17

  16. Conclusions Preliminary: • On the importance of high tech entrepreneurship: • Pronounced only in efficiency driven countries • On Entrepreneurship and Growth (in developed countries) • Positive correlation growth and TEA all types. • On Entrepreneurship and Development (in developing countries) • No impact of TEA in LDCs. IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 16 of 17

  17. Discussion How to get more fine grained and sensible sectoral decompositions? Aggregation over multiple survey waves to create cross-section How to empirically establish significantly different parameter vectors? Latent class estimation on cross sectional growth regression. IECER-Conference Mark Sanders 12-14 February, Chur, Switserland 17 of 17

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