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The More Business Owners the Merrier? The Role of Tertiary Education

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  • Mirjam van Praag

    (University of Amsterdam)

  • Andre van Stel

    (EIM Business and Policy Research, Zoetermeer)

Abstract

Policy in developed countries is often based on the assumption that higher business ownership rates induce economic value. Recent microeconomic empirical evidence casts doubts on the validity of this assumption or, at least, leads to a more nuanced view: Especially the top performing business owners are responsible for the value creation of business owners. Other labor market participants would contribute more to economic value creation as an employee than a business owner. The implied existence of an 'optimal' business ownership rate would thus replace the dictum of 'the more business owners, the merrier'. We attempt to establish whether there is such an optimal level, while investigating the role of tertiary education. Two findings stand out. First, by estimating extended versions of traditional Cobb Douglas production functions on a sample of 19 OECD countries over the period 1981-2006, we find indeed robust evidence of an optimal business ownership rate (at around 12.5%, on average). Second, the relation between business ownership and macroeconomic productivity is steeper for countries with higher participation rates in tertiary education. Thus, the optimal business ownership rate tends to decrease with tertiary education levels. This is consistent with microeconomic theory and evidence showing that entrepreneurs with superior levels of human capital run larger firms.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-067/3.

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Date of creation: 15 Apr 2011
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Handle: RePEc:dgr:uvatin:20110067

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Keywords: entrepreneurship; business ownership; human capital; (returns to) education; cross-country comparison; production function;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The point of not overdoing entrepreneurship favoritism
    by Economic Logician in Economic Logic on 2010-04-23 17:55:00
  2. Should we encourage business ownership?
    by Economic Logician in Economic Logic on 2011-07-18 14:02:00
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Cited by:
  1. Frank M. Fossen & Tobias J. M. Büttner, 2012. "The Returns to Education for Opportunity Entrepreneurs, Necessity Entrepreneurs, and Paid Employees," Discussion Papers of DIW Berlin 1241, DIW Berlin, German Institute for Economic Research.
  2. Florian Noseleit, 2013. "Entrepreneurship, structural change, and economic growth," Journal of Evolutionary Economics, Springer, Springer, vol. 23(4), pages 735-766, September.
  3. André van Stel & Mirjam van Praag & José Maria Millán & Emilio Congregado & Concepcion Roman, 2013. "The value of an educated population for an individual's entrepreneurship success," Scales Research Reports, EIM Business and Policy Research H201103, EIM Business and Policy Research.
  4. André van Stel & Sander Wennekers & Jolanda Hessels & Chantal Hartog, 2011. "Global Entrepreneurship Monitor 2010 The Netherlands," Scales Research Reports, EIM Business and Policy Research A201108, EIM Business and Policy Research.
  5. André van Stel & Roy Thurik & Gerard Scholman, 2014. "The relationship between entrepreneurial activity, the business cycle and economic openness," Scales Research Reports, EIM Business and Policy Research H201218, EIM Business and Policy Research.
  6. André van Stel & J. Cieslik Cieslik, 2014. "Trends in Business Ownership in Central and East European Transition Economies," Scales Research Reports, EIM Business and Policy Research H201202, EIM Business and Policy Research.
  7. André van Stel & Emilio Congregado & Antonio Golpe, 2012. "Unraveling the relationship between firm size and economic development: The roles of embodied and disembodied technological progress," Scales Research Reports, EIM Business and Policy Research H201109, EIM Business and Policy Research.
  8. André van Stel & Chantal Hartog & J. Cieslik Cieslik, 2010. "Measuring Business Ownership Across Countries and Over Time: Extending the COMPENDIA Data Base," Scales Research Reports, EIM Business and Policy Research H201019, EIM Business and Policy Research.

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