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Nascent entrepreneurship and the level of economic development

Author

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  • Sander Wennekers
  • André van Stel
  • Roy Thurik
  • Paul Reynolds

Abstract

Based upon two strands of literature, this paper hypothesizes a U-shaped relationship between a country's rate of entrepreneurial dynamics and its level of economic development. This would imply a different scope for entrepreneurship policy across subsequent stages of development. Regressing GEM's 2002 data for nascent entrepreneurship in 36 countries on the level of economic development as measured either by per capita income or by an index for innovative capacity, we find support for a U-shaped relationship. Testing our results against several control variables, evidence is again found for this relationship with economic development, in addition to significant effects of the business ownership rate (+), social security expenditure (-), aggregate taxes (+) and population growth (+). The results suggest that a 'natural rate' of nascent entrepreneurship is to some extent governed by 'laws' related to the level of economic development. For the most advanced nations, improving incentive structures for business start-ups and promoting the commercial exploitation of scientific findings offer the most promising approach for public policy. Developing nations, however, may be better off pursuing the exploitation of scale economies, fostering foreign direct investment and promoting management education.

Suggested Citation

  • Sander Wennekers & André van Stel & Roy Thurik & Paul Reynolds, 2005. "Nascent entrepreneurship and the level of economic development," Papers on Entrepreneurship, Growth and Public Policy 2005-14, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    • Handle: RePEc:esi:egpdis:2005-14
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    References listed on IDEAS

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    1. André Stel & Martin Carree & Roy Thurik, 2005. "The Effect of Entrepreneurial Activity on National Economic Growth," Small Business Economics, Springer, vol. 24(3), pages 311-321, February.
    2. Sam Youl Lee & Richard Florida & Zoltan J. Acs, 2008. "Creativity and Entrepreneurship: A Regional Analysis of New Firm Formation," Chapters, in: Entrepreneurship, Growth and Public Policy, chapter 13, pages 171-182, Edward Elgar Publishing.
    3. Bleaney, Michael & Nishiyama, Akira, 2002. "Explaining Growth: A Contest between Models," Journal of Economic Growth, Springer, vol. 7(1), pages 43-56, March.
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    5. Yamada, Gustavo, 1996. "Urban Informal Employment and Self-Employment in Developing Countries: Theory and Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 44(2), pages 289-314, January.
    6. Pekka Ilmakunnas & Vesa Kanniainen & Uki Lammi, "undated". "Entrepreneurship, Economic Risks, and Risk-Insurance in the Welfare State," EPRU Working Paper Series 99-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    7. David B. Audretsch & A. Roy Thurik, 2000. "Capitalism and democracy in the 21st Century: from the managed to the entrepreneurial economy," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 17-34.
    8. Sander Wennekers & Andre van Stel & Niels Noorderhaven & Roy Thurik, 2004. "The Role Of Dissatisfaction And Per Capita Income In Explaining Self-Employment Across 15 European Countries," Papers on Entrepreneurship, Growth and Public Policy 2004-11, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    9. Iyigun, Murat F & Owen, Ann L, 1998. "Risk, Entrepreneurship, and Human-Capital Accumulation," American Economic Review, American Economic Association, vol. 88(2), pages 454-457, May.
    10. André van Stel & Roy Thurik & Sander Wennekers & Paul D. Reynolds, 2004. "Explaining variation in nascent entrepreneurship," Scales Research Reports H200401, EIM Business and Policy Research.
    11. Catherine Armington & Zoltan J. Acs, 2008. "The Determinants of Regional Variation in New Firm Formation," Chapters, in: Entrepreneurship, Growth and Public Policy, chapter 18, pages 224-243, Edward Elgar Publishing.
    12. Heleen Stigter & Niels Bosma & Sander Wennekers, 2002. "The Long Road to the Entrepreneurial Society," Scales Research Reports A200115, EIM Business and Policy Research.
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    15. Schultz, T Paul, 1990. "Women's Changing Participation in the Labor Force: A World Perspective," Economic Development and Cultural Change, University of Chicago Press, vol. 38(3), pages 457-488, April.
    16. Roy Thurik & Sander Wennekers & Lorraine Uhlaner, 2002. "Entrepreneurship and economic performance: a macro perspective," Scales Research Reports N200220, EIM Business and Policy Research.
    17. Acs, Zoltán J & Audretsch, David B & Evans, David S, 1994. "Why Does the Self-Employment Rate Vary Across Countries and Over Time?," CEPR Discussion Papers 871, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    Nascent entrepreneurship; economic development;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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