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High income inequality as a structural factor in entrepreneurial activity

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  • Antonio Lecuna

    (School of Business and Economics, Universidad del Desarrollo)

Abstract

Statistical tests on a panel of data from 54 countries over the 2004–2009 period support the proposition that high income inequality and entrepreneurial activity share a positive linear relationship. In a novel approach, the dependent variable is defined from two independent and uncorrelated perspectives: (1) the World Bank Group Entrepreneurship Snapshot, which measures new business entry density based on secondary official sources; and (2) the Total Early Stage Entrepreneurial Activity of the Global Entrepreneurship Monitor project, which is a survey-based measure of formal and informal entrepreneurial participation rates. The empirical strategy is based on the logic that economies with increasing concentrations of wealth tend to encourage entrepreneurial activity because entrepreneurs accumulate more income than workers. Following the disequalizing model, once this inequality appears, it is reinforced in successive generations. The intuition behind this outcome is that a certain level of initial capital is required to establish a new enterprise, which implies that the probability of becoming an entrepreneur increases if an individual has inherited wealth.

Suggested Citation

  • Antonio Lecuna, 2014. "High income inequality as a structural factor in entrepreneurial activity," Past Working Papers xx, Universidad del Desarrollo, School of Business and Economics, revised Dec 2014.
  • Handle: RePEc:dsr:pastwp:08
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    References listed on IDEAS

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    Cited by:

    1. Gonçalo Brás & Elias Soukiazis, 2014. "The Nature of Entrepreneurship and its Determinants: Opportunity or Necessity?," GEMF Working Papers 2014-22, GEMF, Faculty of Economics, University of Coimbra.
    2. Roxana Gutiérrez-Romero & Luciana Méndez-Errico, 2017. "Does Inequality Foster or Hinder the Growth of Entrepreneurship in the Long Run?," Research on Economic Inequality, in: Research on Economic Inequality, volume 25, pages 299-341, Emerald Group Publishing Limited.
    3. Ahmad Fathi Alheet, 2019. "Investigating the relationship between entrepreneurial activity and economic growth: a case of Middle East," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(2), pages 1036-1047, December.
    4. Rajeev K. Goel & James W. Saunoris, 2020. "Does income inequality sand or grease the wheels of entrepreneurial activity? International evidence," Australian Economic Papers, Wiley Blackwell, vol. 59(2), pages 138-160, June.
    5. Eunice Maria M. N. Dos Santos & João J. Ferreira, 2017. "Analyzing Informal Entrepreneurship: A Bibliometric Survey," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 22(04), pages 1-20, December.
    6. Sarkar, Soumodip & Rufín, Carlos & Haughton, Jonathan, 2018. "Inequality and entrepreneurial thresholds," Journal of Business Venturing, Elsevier, vol. 33(3), pages 278-295.

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    More about this item

    Keywords

    Entrepreneurship; income inequality; institutions; public policy.;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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