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The more business owners, the merrier? The role of tertiary education

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  • Mirjam Praag

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  • André Stel

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Abstract

Policy in developed countries is often based on the assumption that higher business ownership rates induce economic value. Recent microeconomic empirical evidence may lead 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 as 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, i.e., a quadratic relation between the business ownership rate and economic output rather than a linear or higher-order relationship, 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 indeed find robust evidence of an optimal business ownership rate. 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 business owners with higher levels of human capital run larger firms. Copyright The Author(s) 2013

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  • Mirjam Praag & André Stel, 2013. "The more business owners, the merrier? The role of tertiary education," Small Business Economics, Springer, vol. 41(2), pages 335-357, August.
  • Handle: RePEc:kap:sbusec:v:41:y:2013:i:2:p:335-357 DOI: 10.1007/s11187-012-9436-x
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    Cited by:

    1. Fossen, Frank M. & Büttner, Tobias J.M., 2013. "The returns to education for opportunity entrepreneurs, necessity entrepreneurs, and paid employees," Economics of Education Review, Elsevier, vol. 37(C), pages 66-84.
    2. André van Stel & Sander Wennekers & Jolanda Hessels & Chantal Hartog, 2011. "Global Entrepreneurship Monitor 2010 The Netherlands," Scales Research Reports A201108, EIM Business and Policy Research.
    3. 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 H201109, EIM Business and Policy Research.
    4. 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 H201019, EIM Business and Policy Research.
    5. Keith A. Bender & Kristen Roche, 2016. "Self-employment and the paradox of the contented female worker," Small Business Economics, Springer, vol. 47(2), pages 421-435, August.
    6. André van Stel & J. Cieslik Cieslik, 2014. "Trends in Business Ownership in Central and East European Transition Economies," Scales Research Reports H201202, EIM Business and Policy Research.
    7. Souksavanh VIXATHEP & Nobuaki MATSUNAGA, 2015. "Entrepreneurial Human and Social Capital in Small Businesses in Vietnam - An Extended Analysis -," GSICS Working Paper Series 29, Graduate School of International Cooperation Studies, Kobe University.
    8. André van Stel & Roy Thurik & Gerard Scholman, 2014. "The relationship between entrepreneurial activity, the business cycle and economic openness," Scales Research Reports H201218, EIM Business and Policy Research.
    9. repec:spr:eurasi:v:4:y:2014:i:1:p:107-136 is not listed on IDEAS
    10. Florian Noseleit, 2013. "Entrepreneurship, structural change, and economic growth," Journal of Evolutionary Economics, Springer, pages 735-766.
    11. Riccardo Fini & Kun Fu & Marius Tuft Mathisen & Einar Rasmussen & Mike Wright, 2017. "Institutional determinants of university spin-off quantity and quality: a longitudinal, multilevel, cross-country study," Small Business Economics, Springer, vol. 48(2), pages 361-391, February.
    12. Jose Maria Millan & Emilio Congregado & Concepcion Roman & Mirjam van Praag & Andre van Stel, 2011. "The Value of an Educated Population for an Individual's Entrepreneurship Success," Tinbergen Institute Discussion Papers 11-066/3, Tinbergen Institute, revised 06 May 2014.
    13. repec:hyo:journl:v:7:y:2017:i:1:p:33 is not listed on IDEAS
    14. repec:spr:pharme:v:4:y:2014:i:1:p:107-136 is not listed on IDEAS

    More about this item

    Keywords

    Business ownership; Human capital; (Returns to) education; Cross-country comparison; Production function; E23; J24; L26; O40; O57;

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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