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
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”
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.
Set up of a research paper
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


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

Introduction
Literature
Data
Method
Results
Discussion and conclusions
Implications
Introduction

Motivation
 Research questions
 Approach
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
Literature

Discuss relevant previous studies
 Based on literature it is possible to:
 Determine contribution
 Develop hypotheses
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)
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
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
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?
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
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
Literature: hypotheses

Three hypotheses:

Hypothesis 1: Positive relationship early-stage
entrepreneurship and economic growth

Hypothesis 2: Positive relationship between earlystage entrepreneurship and economic growth more
pronounced for export-oriented entrepreneurship

Hypothesis 3: Positive relationship of exportoriented entrepreneurship with economic growth
more pronounced in higher-income countries
Data

Determine:

variables needed

availability of data

level of analysis

time frame
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
Data: dependent variable

Economic Growth

Growth of GDP
(World Economic Outlook Database, IMF)

4 year average
Data: independent variables

Entrepreneurship:

TEA: Total early-stage Entrepreneurial Activity
(GEM)

Export orientation:

Export orientation (>25 % foreign customers
(within TEA))
(GEM)
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)
Method



Select appropriate method and set up based on:

Research questions/hypotheses

Nature of data/variables
Determine estimation sample
Take account of endogeneity
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
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)
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
Results


Look at descriptives first (means, correlations
etc.)
Focus on main findings
Results: descriptives
Table 1: Descriptives
∆GDP
TEA
Export oriented
new ventures
log(GDPC)
GCI
Higher income countries (N=55)
Mean
3.2
6.6
18.3
10.2
5.2
Standard
deviation
Minimum
1.5
3.2
8.2
0.2
0.4
0.4
1.5
0.0
9.5
4.3
Maximum
7.2
14.5
43.2
10.7
6.0
Lower income countries (N=25)
Mean
5.9
12.2
10.0
8.9
4.0
Standard
deviation
Minimum
2.5
6.1
8.6
0.5
0.4
2.3
2.5
1.0
7.4
3.2
Maximum
10.5
27.3
32.5
9.4
4.9
Notes: The descriptive statistics refer to the model variables from Equation (1), hence ∆GDP is an average over years t to t-3
while all other variables are three year lagged. The descriptives refer to the estimation sample 2005-2008.
Results: controls, independents
Table 2: Explaining economic growth from TEA and export orientation (N=80)
TEA
Model 1
Constant
22.0 **
(8.8)
Model 2
17.0 **
(6.2)
TEA
0.14 **
(4.8)
Exportoriented new ventures
0.048 *
(2.2)
log (GDPC)
-1.6 **
-1.3 **
(4.5)
(4.1)
GCI
-0.55
-0.57
(1.3)
(1.7)
lagged gdp growth
0.31 **
0.35 **
(3.3)
(4.2)
Loglikelihood
-141.0
-132.3
2
R
0.566
0.652
2
adjusted R
0.530
0.613
Absolute heteroskedasticity-consistent t-values are between brackets. Year dummies included but not
reported. * Significant at a 0.05 level. ** Significant at a 0.01 level
Results: higher/lower income
Table 3: Explaining economic growth from TEA and export orientation (N=80)
TEA
Constant
Model 3
19.3 **
(4.4)
TEA rich countries
0.12 *
(2.3)
TEA poor countries
0.15 **
(3.8)
Export oriented new ventures, rich countries
0.066 **
(2.7)
Export oriented new ventures, poor countries
0.008
(0.3)
log (GDPC)
-1.5 **
(3.4)
GCI
-0.56
(1.7)
lagged gdp growth
0.33 **
(3.3)
Loglikelihood
-130.5
2
R
0.668
2
adjusted R
0.619
Absolute heteroskedasticity-consistent t-values are between brackets. Year dummies included but not
reported. * Significant at a 0.05 level. ** Significant at a 0.01 level
Results: robustness check
Table 4: Explaining economic growth from TEA and export orientation (N=80)
TEA
Model 4
Model 5
Constant
18.2 **
(6.6)
0.17 **
(5.4)
20.4 **
(4.9)
TEA
TEA rich countries
0.15 **
(2.9)
0.17 **
(4.6)
TEA poor countries
FIT export oriented new
ventures
FIT export oriented new
ventures, rich countries
FIT export oriented new
ventures, poor countries
log (GDPC)
0.11 **
(4.2)
0.12 **
(4.5)
0.073
(1.8)
-1.5 **
-1.7 **
(4.8)
(3.9)
GCI
-0.61 *
-0.66 *
(2.1)
(2.5)
lagged gdp growth
0.37 **
0.34 **
(5.0)
(4.0)
Loglikelihood
-123.4
-122.2
R2
0.722
0.731
2
adjusted R
0.691
0.692
Absolute heteroskedasticity-consistent t-values are between brackets. Year dummies included but not
reported. * Significant at a 0.05 level. ** Significant at a 0.01 level
Conclusion and discussion


Discuss main findings in light of previous
literature
Provide rationale for counterintuitive/not
readily explained results
Conclusion and discussion



Positive impact of entrepreneurship in general
Export orientation makes a significant
additional contribution
Difference between higher- and lower-income
countries
Implications


What are the implications of the findings for
e.g. managers, policy makers?
What are suggestions for further research?
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
Future research



Other aspects of entrepreneurial behavior
Other measures of national (economic)
performance
Relation entrepreneurship with economic
cycle, unemployment, duration of recessions
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