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The relationship between entrepreneurial activity, the business cycle and economic openness

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  • André van Stel
  • Roy Thurik
  • Gerard Scholman

Abstract

We investigate the interplay between entrepreneurial activity, the business cycle and unemployment in relation to the openness of the economy. Also, we explore to what extent the observation frequency (quarterly versus annual data) influences estimation results. Following empirical literature, we estimate a pooled VAR model of the three macro-economic variables. Using both quarterly and annual data for 19 OECD countries over the period 1998-2007, we find that in the short run (after one quarter), a country’s entrepreneurial activity is stimulated when its business cycle is lagging the world’s business cycle, whereas in the medium run (after one to two years), entrepreneurial activity is stimulated when its business cycle is leading the world’s business cycle. This suggests that a country’s business cycle position relative to the world’s cycle creates different types of entrepreneurial opportunities depending on the time horizon considered. These results apply to relatively open economies only which suggests that economic openness plays a role for entrepreneurial opportunities related to a country’s cyclical performance.

Suggested Citation

  • 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.
  • Handle: RePEc:eim:papers:h201218
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    1. 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.
    2. Aitken, Brian & Hanson, Gordon H. & Harrison, Ann E., 1997. "Spillovers, foreign investment, and export behavior," Journal of International Economics, Elsevier, vol. 43(1-2), pages 103-132, August.
    3. André van Stel & David Storey & Pamela Mueller, 2006. "The effects of new firm formation on regional development over time: The case of Great Britain," Scales Research Reports H200618, EIM Business and Policy Research.
    4. Thurik, A. Roy & Carree, Martin A. & van Stel, André & Audretsch, David B., 2008. "Does self-employment reduce unemployment?," Journal of Business Venturing, Elsevier, vol. 23(6), pages 673-686, November.
    5. Roy Thurik, 2014. "Entrepreneurship and the business cycle," IZA World of Labor, Institute for the Study of Labor (IZA), pages 1-90, October.
    6. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    7. Parker,Simon C., 2009. "The Economics of Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521728355, March.
    8. Michael Fritsch & Pamela Mueller, 2004. "The Effects of New Business Formation on Regional Development over Time," Papers on Entrepreneurship, Growth and Public Policy 2004-36, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    9. Michael Fritsch & Pamela Mueller, 2004. "Effects of New Business Formation on Regional Development over Time," Regional Studies, Taylor & Francis Journals, vol. 38(8), pages 961-975.
    10. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    11. Dirk Clercq & Jolanda Hessels & André Stel, 2008. "Knowledge spillovers and new ventures’ export orientation," Small Business Economics, Springer, vol. 31(3), pages 283-303, October.
    12. Parker,Simon C., 2009. "The Economics of Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521899604, March.
    13. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
    14. Andre van Stel, "undated". "COMPENDIA: Harmonizing business ownership data across countries and over time," Papers on Entrepreneurship, Growth and Public Policy 2005-05, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    15. Pamela Mueller & André Stel & David Storey, 2008. "The effects of new firm formation on regional development over time: The case of Great Britain," Small Business Economics, Springer, vol. 30(1), pages 59-71, January.
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