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Entrepreneurship from Scratch: Lessons on the Entry Decision into Self-Employment from Transition Economies

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  • Earle, John S.

    (George Mason University)

  • Sakova, Zuzana

    (affiliation not available)

Abstract

This paper exploits the rapid rise in self-employment rates in post-communist Eastern Europe as a valuable "quasi-experiment" for understanding the sources of entrepreneurship. A relative demand-supply model and an individual sectoral choice model are used to analyze a 1993 survey of 27,000 adults in six transition economies. Estimated self-employment earnings premia are positive, and the data imply positive selection into both employee and self-employment status. Structural probit estimates show the probability of self-employment entry is unassociated with former Communist Party affiliation but positively related to schooling, pre-transition family income, receipt of property in restitution, pre-communist family business-holding, and predicted earnings differential. Cross-country variation in predicted self-employment entry rates and relative earnings provide evidence on the demand and supply factors affecting the decision to become an entrepreneur.

Suggested Citation

  • Earle, John S. & Sakova, Zuzana, 1999. "Entrepreneurship from Scratch: Lessons on the Entry Decision into Self-Employment from Transition Economies," IZA Discussion Papers 79, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp79
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    Cited by:

    1. Artjoms Ivlevs & Milena Nikolova & Olga Popova, 2021. "Former Communist party membership and present-day entrepreneurship," Small Business Economics, Springer, vol. 57(4), pages 1783-1800, December.
    2. Alessandra Guariglia & Byung‐Yeon Kim, 2006. "The dynamics of moonlighting in Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(1), pages 1-45, March.
    3. John McMillan & Christopher Woodruff, 2002. "The Central Role of Entrepreneurs in Transition Economies," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 153-170, Summer.
    4. Brown, J David & Earle, John S & Lup, Dana, 2005. "What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 33-70, October.
    5. Ira N. Gang & Catherine Y. Co & Myeong-Su Yun, 2002. "Self-Employment and Wage Earning: Hungary During Transition," Departmental Working Papers 200219, Rutgers University, Department of Economics.
    6. J. David Brown & John S. Earle & Dana Lup, 2004. "Finance, Human Capital, Technical Assistance, and the Business Environment in Romania," William Davidson Institute Working Papers Series 2004-639, William Davidson Institute at the University of Michigan.
    7. Justin van der Sluis & Mirjam van Praag & Wim Vijverberg, 2003. "Entrepreneurship Selection and Performance," Tinbergen Institute Discussion Papers 03-046/3, Tinbergen Institute, revised 24 Sep 2004.
    8. Sameeksha Desai, 2009. "Measuring Entrepreneurship in Developing Countries," WIDER Working Paper Series RP2009-10, World Institute for Development Economic Research (UNU-WIDER).
    9. Klara Z. Sabirianova, 2000. "The Great Human Capital Reallocation: An Empirical Analysis of Occupational Mobility in Transitional Russia," William Davidson Institute Working Papers Series 309, William Davidson Institute at the University of Michigan.
    10. Steven Stillman, 2000. "Labor Market Uncertainty and Private Sector Labor Supply in Russia," William Davidson Institute Working Papers Series 359, William Davidson Institute at the University of Michigan.
    11. Tanya Chavdarova, 2014. "Risky Businesses? Young People in Informal Self-Employment in Sofia," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 38(6), pages 2060-2077, November.
    12. Steven Stillman, 2000. "Labor Market Uncertainty and Private Sector Labor Supply in Russia," William Davidson Institute Working Papers Series 359, William Davidson Institute at the University of Michigan.
    13. Brixiova, Zuzana & Li, Wenli & Yousef, Tarik, 2009. "Skill shortages and labor market outcomes in Central Europe," Economic Systems, Elsevier, vol. 33(1), pages 45-59, March.
    14. Scharle, Ágota, 2000. "Önfoglalkoztatás, munkanélküliség és családi kisvállalkozások Magyarországon [Self-employment, unemployment and small family firms in Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 250-274.
    15. Daniel Berkowitz & David N. DeJong, 2005. "Entrepreneurship and Post‐socialist Growth," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(1), pages 25-46, February.
    16. Ruslan Yemtsov, 2003. "Quo Vadis? Inequality and Poverty Dynamics across Russian Regions," WIDER Working Paper Series DP2003-67, World Institute for Development Economic Research (UNU-WIDER).
    17. Geraint Johnes & Alexander Kalinoglou & Ayana Manasova, 2005. "Chaos and the Dancing Stars," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 14(1), pages 1-19, March.
    18. World Bank, 2001. "Croatia : Economic Vulnerability and Welfare Study," World Bank Publications - Reports 15698, The World Bank Group.

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    More about this item

    Keywords

    Entrepreneurship; self-employment; transition; small business; selection bias; structural probit Eastern Europe; Bulgaria; Czech Republic; Hungary; Poland; Russia; Slovakia;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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