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Does inequality foster or hinder the growth of entrepreneurship in the long-run?

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  • Roxana Gutiérrez-Romero
  • Luciana Mendez-Errico

Abstract

This article assesses the extent to which historical levels of inequality affect the creation and survival of businesses over time. To this end, we use the Global Entrepreneurship Monitor (GEM) survey across 66 countries over 2005–2011. We complement this survey with data on income inequality dating back to early 1800s and current institutional environment, such as the number of procedures to start a new business, countries’ degree of financial inclusion, corruption and political stability. We find that although inequality increases the number of firms created out of need, inequality reduces entrepreneurial activity as in net terms businesses are less likely to be created and survive over time. These findings are robust to using different measures of inequality across different points in time and regions, even if excluding Latin America the most unequal region in the world. Our evidence then supports theories that argue early conditions, crucially inequality, influence development path.

Suggested Citation

  • Roxana Gutiérrez-Romero & Luciana Mendez-Errico, 2017. "Does inequality foster or hinder the growth of entrepreneurship in the long-run?," Working Papers 83, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  • Handle: RePEc:cgs:wpaper:83
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    Keywords

    Inequality; entrepreneurship; panel data; instrumental variables.;

    JEL classification:

    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • D3 - Microeconomics - - Distribution
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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