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Perceptions, Expectations, and Entrepreneurship: The Role of Extreme Events

  • Brück, Tilman

    ()

    (ISDC - International Security and Development Center)

  • Llussá, Fernanda

    ()

    (Universidade Nova de Lisboa)

  • Tavares, José

    ()

    (Universidade Nova de Lisboa)

We provide, for the first time, comparative evidence of the impact of various types of extreme events – natural disasters, terrorism, and violent conflicts – on the perceptions of entrepreneurs concerning some key entrepreneurial issues – such as fear of failure in starting a business venture, whether individuals expect that good opportunities are likely to emerge in the next six months, and the expected level of competition stemming from creating new ventures. The occurrence of extreme events is likely to be exogenous to the perceptions affecting it so that we can identify a causal link from events to entrepreneurs and their perceptions. Using individual-level data from 43 countries from the period 2002 to 2005, we find that neither indicator of the intensity of extreme events has a significant impact on entrepreneurial activity, when country characteristics are not controlled for. Once invariant country characteristics are taken into account, we find that Terrorist Attacks have a positive and significant impact on business creation, Natural Disasters have a positive and negative impact on entrepreneurial activity, and Violent Conflict has no significant effect. These results are consistent with differential impacts of extreme events on perception variables such as Fear of Failure, Expected Business Opportunities, and Expected Level of Competition. Our results suggest that extreme events, while costly at the aggregate level, may induce a positive response in terms of entrepreneurial activity in specific circumstances. There is hence scope for entrepreneurs, and policies supporting them, to create growth from the ruins of extreme events.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5351.

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Length: 19 pages
Date of creation: Dec 2010
Date of revision:
Publication status: published in: European Journal of Political Economy, 2011, 27 (S1), S78-S88
Handle: RePEc:iza:izadps:dp5351
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  1. Christopher Blattman, 2008. "From Violence to Voting: War and political participation in Uganda," HiCN Working Papers 42, Households in Conflict Network.
  2. Bozzoli, Carlos & Brück, Tilman & Muhumuza, Tony, 2011. "Does war influence individual expectations?," Economics Letters, Elsevier, vol. 113(3), pages 288-291.
  3. Khusrav Gaibulloev & Todd Sandler, 2009. "The Impact Of Terrorism And Conflicts On Growth In Asia," Economics and Politics, Wiley Blackwell, vol. 21(3), pages 359-383, November.
  4. Rachida Justo & CRISTINA CRUZ & JULIO ORLANDO DE CASTRO & ALICIA CODURAS, 2006. "Entrepreneurs´ perceptions of success: examining differences across gender and family status," Working Papers Economia wp06-07, Instituto de Empresa, Area of Economic Environment.
  5. Cagatay Bircan & Tilman Brück & Marc Vothknecht, 2010. "Violent Conflict and Inequality," HiCN Working Papers 77, Households in Conflict Network.
  6. Maarten Voors & Eleonora Nillesen & Philip Verwimp & Erwin Bulte & Robert Lensink & Daan van Soest, 2010. "Does Conflict affect Preferences? Results from Field Experiments in Burundi," Research Working Papers 21, MICROCON - A Micro Level Analysis of Violent Conflict.
  7. John Bennett & Saul Estrin, 2007. "Informality as a Stepping Stone: Entrepreneurial Entry in a Developing Economy," CEDI Discussion Paper Series 07-11, Centre for Economic Development and Institutions(CEDI), Brunel University.
  8. Llussá, Fernanda & Tavares, José, 2007. "Economics and Terrorism: What We Know, What We Should Know and the Data We Need," CEPR Discussion Papers 6509, C.E.P.R. Discussion Papers.
  9. Carlos Bozzoli & Tilman Brück & Nina Wald, 2013. "Self-employment and Conflict in Colombia," Journal of Conflict Resolution, Peace Science Society (International), vol. 57(1), pages 117-142, February.
  10. Carlos Bozzoli & Tilman Bruck & Simon Sottsas, 2010. "A Survey Of The Global Economic Costs Of Conflict," Defence and Peace Economics, Taylor & Francis Journals, vol. 21(2), pages 165-176.
  11. Paul Collier & V. L. Elliott & Håvard Hegre & Anke Hoeffler & Marta Reynal-Querol & Nicholas Sambanis, 2003. "Breaking the Conflict Trap : Civil War and Development Policy," World Bank Publications, The World Bank, number 13938, June.
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