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)
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20-21 June, Barcelona, Spain
Background
Economists interest in economic growth:
 Before 1990s: mainly within context of lower-income
countries (development economics)
 Since 1990s: Increased interest in economic growth in
higher-income countries (following Romer/Lucas)
 Debate on role of entrepreneurship in economic growth
(entrepreneurship, growth and development economics)
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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
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Views on entrepreneurship
Different functions entrepreneurs (Hébert & Link, 2009);
The 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
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Entrepreneurship and growth
 Traditional neoclassical growth theory (Harrod Domar,
Lewis); Endogenous growth theory (Romer)
 Models of entrepreneurship and growth (Schmitz, 1989;
Murphy et al., 1991; Iyigun and Owen, 1999)
 Knowledge spillover theory of entrepreneurship
(Audretsch and Keilbach, 2004)
 Empirical studies: positive relationship entrepreneurship
with economic growth in higher income countries
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Entrepreneurship and growth
How entrepreneurship contributes to growth:
 Schumpeterian Growth Models
 Knowledge Spillover Theory of Entrepreneurship
 Self-Employment and Self-Realization
Entrepreneurs create value directly and through diversity,
knowledge spillovers and competition in markets
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Types of entrepreneurship
Segmentation within entrepreneurship:
 Employers versus own account workers
 Opportunity versus necessity entrepreneurs
 Innovators versus imitators
 Etc…
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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.
 Explore who sorts into what sector of activity.
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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
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TEA rates for UK, NL, US, BE
0.14
UK
NL
0.12
US
BE
TEA rate
0.10
0.08
0.06
0.04
0.02
0.00
2001
2002
2003
2004
2005
2006
2007
2008
2009
survey year
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Decomposition of TEA
12
(not known)
high tech TEA
10
low tech TEA
no tech TEA
TEA rate
8
6
4
2
0
2001
2002
2003
2004
2005
2006
2007
2008
2009 All years
survey year
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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.




Year dummies are included to avoid selection bias.
Correlations, not causality.
By type (3) and development stage (3)
What activity benefits what countries?
 Ordered logit on types of entrepreneurship
 Usual suspects
 Who engages in what activity under what growth regime?
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Results
 For all countries and for all years (n=337)
 Overall TEA (log) positive significant influence at 1%
 GDP per capita (log) negative significant influence at 5%
 When distinguishing between industries:
 High-tech TEA (log) significant at 1%
 The other industry TEAs are not significantly related to
economic growth
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Results (2)
 Distinguishing between stage of development
 Factor-driven economies (n=30):
 No significant influences for the TEA rates; no and low-tech
TEA have negative sign.
 Efficiency-driven economies (n=109)
 Overall TEA (5%) and high-tech TEA (1%) positive
significant, others insignificant.
 Innovation-driven economies (n=198)
 Overall TEA (5%) positive significant, others insignificant.
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Results (3)
 Who selects into what type of activity?
 All countries, individual observations (n=61400):





Male.
Older.
More Educated.
Ambitious.
Opportunity driven.
 Further refinements
 By development regime
 Control for time
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Conclusion
Preliminary conclusions:
 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.
 On Entrepreneurship and Development (in developing countries)
 No impact of TEA in LDCs. Low Quality?
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Discussion
Entrepreneurship (TEA) is too coarse a measure to
capture relevant entrepreneurial activity:
Importance of institutions (e.g., Boettke and Coyne,
2003): certain institutions (e.g., rule of law) that encourage
entrepreneurial aspects must be present
Importance of policies (e.g., Dias and McDermott, 2006):
different policies (e.g., education and tax relief for
entrepreneurs) work together to achieve growth
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