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Schooling, Capital Constraints and Entrepreneurial Performance


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  • Simon Parker

    (Durham University)

  • Mirjam van Praag

    (Universiteit van Amsterdam, SCHOLAR)


We estimate the impact of schooling and capital constraints at the time of startup on the performance of Dutch entrepreneurial ventures, taking into account the potential endogeneity and interdependence of these variables. Instrumental variable estimates indicate that a 1 percentage point relaxation of capital constraints increases entrepreneurs' gross business incomes by 3.9% on average. Education enhances entrepreneurs' performance both directly—with a rate of return of 13.7%—and indirectly, because each extra year of schooling decreases capital constraints by 1.18 percentage points. The indirect effect of education on entrepreneurs' performance is estimated to be 3.0–4.6%. This discussion paper has resulted in a publication in the Journal of Business and Economic Statistics , 24(4), 416-31.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-106/3.

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Date of creation: 23 Sep 2004
Date of revision: 07 Mar 2005
Handle: RePEc:dgr:uvatin:20040106

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Keywords: entrepreneurship; self-employment; returns to education; capital constraint; liquidity constraint; borrowing constraint;

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  1. Justin van der Sluis & Mirjam van Praag & Wim Vijverberg, 2003. "Entrepreneurship Selection and Performance," Tinbergen Institute Discussion Papers, Tinbergen Institute 03-046/3, Tinbergen Institute, revised 24 Sep 2004.
  2. Douglas Holtz-Eakin & David Joulfaian & Harvey Rosen, 1993. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 698, Princeton University, Department of Economics, Industrial Relations Section..
  3. de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(435), pages 375-86, March.
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Cited by:
  1. Marco Caliendo & Alexander S. Kritikos, 2008. "Start-Ups by the Unemployed: Characteristics, Survival and Direct Employment Effects," Working Papers, Hanseatic University, Germany, Department of Economics 008, Hanseatic University, Germany, Department of Economics.
  2. Anu Tokila & Hannu Tervo, 2011. "Regional differences in returns to education for entrepreneurs versus wage earners," The Annals of Regional Science, Springer, Springer, vol. 47(3), pages 689-710, December.
  3. Vargas, Jose P Mauricio, 2012. "Binding Constraints: Does Firm Size Matter?," MPRA Paper 41286, University Library of Munich, Germany.


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