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Business Ownership and Self-Employment in Developing Economies: The Colombian Case

In: International Differences in Entrepreneurship

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  • Camilo Mondragón-Vélez
  • Ximena Peña

Abstract

We characterize entrepreneurship in developing economies through a case study for Colombia. We document self-employment and business ownership since the 1980s; while the relative size of these groups within the labor force is stable across time, they differ significantly in important observable dimensions such as education and business sector. We then study the motivations to become an entrepreneur. First, we analyze the transition into and out of potential forms of entrepreneurship by measuring the flows across occupations, and study the determinants of entry and exit into and out of self-employment and business ownership; there is surprisingly little transition between self-employment and business ownership. Second, we focus on the financial motivations by measuring the differences in earnings of self-employment and businessownership relative to salaried work, at the mean and along the distribution. There is a substantial earnings premium to become a business owner, but it is not financially attractive to become self-employed. The results of this paper suggest that while business ownership is what the literature associates with entrepreneurship, self-employment is basically a subsistence activity.

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This chapter was published in:

  • Josh Lerner & Antoinette Schoar, 2010. "International Differences in Entrepreneurship," NBER Books, National Bureau of Economic Research, Inc, number lern08-2.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 8217.

    Handle: RePEc:nbr:nberch:8217

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    1. Bosch, Mariano & Maloney, William, 2007. "Comparative analysis of labor market dynamics using markov processes : an application to informality," Policy Research Working Paper Series 4429, The World Bank.
    2. Cunningham, Wendy V & Maloney, William F, 2001. "Heterogeneity among Mexico's Microenterprises: An Application of Factor and Cluster Analysis," Economic Development and Cultural Change, University of Chicago Press, vol. 50(1), pages 131-56, October.
    3. Quadrini, Vincenzo, 1999. "The Importance of Entrepreneurship for Wealth Concentration and Mobility," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(1), pages 1-19, March.
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    8. Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," NBER Working Papers 8876, National Bureau of Economic Research, Inc.
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    17. Silvia Ardagna & Annamaria Lusardi, 2008. "Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints," NBER Working Papers 14012, National Bureau of Economic Research, Inc.
    18. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
    19. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    20. Erik Hurst & Arthur Kennickell & Annamaria Lusardi & Francisco Torralba, 2005. "Precautionary Savings and the Importance of Business Owners," NBER Working Papers 11731, National Bureau of Economic Research, Inc.
    21. William M. Gentry & R. Glenn Hubbard, 2000. "Entrepreneurship and Household Saving," NBER Working Papers 7894, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Albrecht, James & Navarro, Lucas & Vroman, Susan, 2006. "The Effects of Labor Market Policies in an Economy with an Informal Sector," IZA Discussion Papers 2141, Institute for the Study of Labor (IZA).
    2. Antoinette Schoar, 2010. "The Divide between Subsistence and Transformational Entrepreneurship," NBER Chapters, in: Innovation Policy and the Economy, Volume 10, pages 57-81 National Bureau of Economic Research, Inc.
    3. Carlos Bozzoli & Tilman Brück & Nina Wald, 2010. "Self-Employment and Conflict in Colombia," HiCN Working Papers 82, Households in Conflict Network.
    4. Silvia Ardagna & Annamaria Lusardi, 2009. "Where does regulation hurt? Evidence from new businesses across countries," NBER Working Papers 14747, National Bureau of Economic Research, Inc.
    5. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 275-363.
    6. Camilo Mondragón-Vélez & Ximena Peña & Daniel Wills, 2010. "Labor Market Rigidities and Informality in Colombia," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
    7. Silvia Ardagna & Annamaria Lusardi, 2008. "Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints," NBER Working Papers 14012, National Bureau of Economic Research, Inc.
    8. Silvia Ardagna & Annamaria Lusardi, 2010. "Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints," NBER Chapters, in: International Differences in Entrepreneurship, pages 17-62 National Bureau of Economic Research, Inc.
    9. Chawanote, Chayanee & Barrett, Christopher B., 2011. "Rural Non-farm Dynamics: Occupational Ladders and Earnings Mobility in Thailand," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103879, Agricultural and Applied Economics Association.

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