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5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 1 New Firm Creation: A Global Assessment of National Factors VI International Workshop of Research Based.

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Presentation on theme: "5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 1 New Firm Creation: A Global Assessment of National Factors VI International Workshop of Research Based."— Presentation transcript:

1 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 1 New Firm Creation: A Global Assessment of National Factors VI International Workshop of Research Based on GEM Universidad de Granada, Ceuta Ceuta, Spain 29 March 2011 Paul D Reynolds Howard Hoffman Distinguished Scholar of Management and Entrepreneurship George Washington University []

2 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 2 What national factors are associated with measures of business creation?

3 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 3 Nascent Enterprise New Business ? Personal Attributes Age Gender Education Work Experience Confidence in ability to create buss Fear of failure Personal Context : Support for Entrepreneurship, Potential for Financial Support National Context Characteristics of the workforce, national cultural & social values, current levels, structure, and change in economic activity, structure of business population, sector focus, centralized national control of business activity Total Entrepreneurial Activity

4 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 4 National Measures of Business Creation Total Entrepreneurial Activity –All, Opportunity, Necessity –Men, Opportunity, Necessity –Women, Opportunity, Necessity –High potential: Technology Sector, Market Impact, Job Growth, Export Oriented –Economic Sectors: Extractive, Transformative, Business Service, Consumer Oriented Nascent Entrepreneurs –All, Opportunity, Necessity New Firm Owner/Managers –All, Opportunity, Necessity Twenty-three different measures

5 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 5 Dependent Variable Sources Detailed APS Data GEM 1998 -2008 Harmonized File Algeria, Jordan, Lebanon, Morocco, Syria, West Bank/Gaza, Yemen for 2009 Summary Data from GEM Coordination 2009 file All other 2009 countries Total sample 77 countries About 1.1 million cases Harmonized procedures for all transformation across all years National values are all years for which data available Computed for year, the averaged across the years Missing data on some variables for countries Detailed data missing in 2009 GEM aggregate file

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7 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 7 Necessity Entrepreneurs Across the countries –About one-third of the activity Higher proportion among countries with higher prevalence rates –Tend to be the developing countries Varies over time –About 10% change in 12 month follow-up interview –From necessity to opportunity New venture looks promising –From opportunity to necessity Other work options look less promising To ignore necessity entrepreneurs is to ignore a major portion of the phenomena

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10 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 10 Type of business activity#/100 AdultsCorr w/ TEA Overall 11.51.0 Nascent Entrepreneurs6.60.88 New Firm Owner-managers5.40.85 TEA Overall: Males13.50.99 TEA Overall: Females9.40.97 TEA ventures: High Tech Sectors1.40.68 TEA ventures: Market impact: medium to high1.60.88 TEA Ventures: Growth oriented: 20+ jobs in five years1.00.33 TEA Ventures: Export oriented: 25+ % internat’l customers0.80.28 TEA ventures: extractive sectors0.60.73 TEA ventures: transformative2.40.90 TEA ventures: business services1.20.27 TEA ventures: consumer oriented4.60.97 Prevalence Rates, Selected Firm Births

11 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 11 Dependent Variable Frequency Distributions High skewed due to high values for small number of countries in the sample Log 10 transform creates normal distributions Log10 used in all regression models –Result is normally distributed residuals –Indication that data set meets most assumptions of the model

12 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 12 National Case Weights If weight of one, all countries have equal impact on assessment Emphasizes Western European business creation –18 of 75 GEM countries Western European Total sample of 75 countries –3.2 billion persons 18-64 years of age –More activity in larger countries Create weights based on proportion of total population represented in each country –Sum of the weights = 75 –Tonga [0.0015] –China [21.10, 14,333 times Tonga] Population weighted analysis give emphasis to developing countries –Weights over 1 for Russia, Brazil, Indonesia, India, and China –Weights over 1 for Germany, Japan, and U.S.

13 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 13 Independent Variables: Economic Characteristics SourceYrs TEA r [no wt] TEA r [pop wt] GDP per capitaWEO2009-.61-.57 GDP per capita increase WEO2005- 2008 0.08 [NS] 0.28 Human population increase US Census 1999- 2009 0.480.39 Income inequality: GINI index Solt (2009) 2000- 2008 0.610.40

14 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 14 Independent Variables: Structural Features SourceYrsTEA r [no wt] TEA r [pop wt] Firm size: enterprises/ 100 adults GEM2000- 2009 0.710.78 Agriculture workers/ all workers World Bank 2000- 2007 0.590.63 Industry workers/ all workers World Bank 2000- 2007 -.42-.59 Service workers/ all workers World Bank 2000- 2007 -.47-.55

15 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 15 Independent Variables: Centralized Control of Economic Activity (1/2) SourceYrsTEA r [no wt] TEA r [pop wt] Per cent workers in non- private sectors ILO and World Bk 2005-.42-.46 Government expenses as percent of GDP Heritage Found 2009-.49-.60 Ease of business registration index WB Doing Business 20090.520.46 Greater commercial legal costs index WB Doing Business 20090.290.18

16 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 16 Independent Variables: Centralized Control of Economic Activity (1/2) SourceYrsTEA r [no wt] TEA r [pop wt] Recognition of physical property rights index IPR Index Report 2009-.49-.40 Recognition of intellectual property rights index IPR Index Report 2009-.57-.64 Perceived CorruptionTranspare ncy Int’al 20050.510.53

17 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 17 Independent Variables: Population Capacity for Business Creation SourceYrsTEA r [no wt] TEA r [pop wt] Entrepreneurial ready adults prevalence index [3 items] GEM2000- 2009 0.700.72 Percent 25-44 yrs old persons in population US Census2007-.36-.35 Percent adults with high school degree or more educ Barro & Lee2000-.35 Men: % labor force participation World Bank20070.430.60 Women: % labor force participation World Bank20070.00 [NS] 0.09 [NS] Unemployment rateWorld Bank2000- 2008 -.03 [NS] -.12 [NS]

18 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 18 Independent Variables: National Cultural and Social Norms SourceYrsTEA r [no wt] TEA r [pop wt] Prevalence of Informal Investors GEM2000-20090.700.53 Cultural Support for Entrepreneurship [3 items] GEM2000-20090.400.55 Traditional versus Secular/Rational Values World Values Survey 1981-2006-.62-.26 Survival versus Self- Expressive Values World Values Survey 1981-2006-.13 [NS] -.24

19 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 19 Comments on Correlation Patterns Most correlations about the same regardless of weighting Several measures retained despite low correlations –Female labor force participation –Survival versus self-expressive values –Unemployment rate

20 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 20 R*R = 0.50 LogTEA R*R = 0.54

21 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 21 Comment on GDP per Capita Widely used as summary measure of the level of economic development Quadratic relationship accounts for 50% (or more) of variance in level of TEA overall But hard to know how to interpret –Assumes all countries have same “development trajectory” –Very crude indicator, not clear what national features are associated with differences –Useless for policy development –Actually a measure of outcomes expected from more business creation

22 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 22 World Values Survey Collected data on 80+ countries –Data on 64 GEM countries Surveys completed over 5 waves: –1981, 1990, 1995, 2000, 2006 Two major dimensions, not correlated Traditional versus secular-rational values –Emphasis on religion, obedience, respect for authority, national pride versus opposite Survival versus self-expressive values –Emphasis on economic security, avoiding political involvement, care in trusting others versus opposite

23 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 23 Cultural Values Reinterpreted Traditional focus associated with –Focus on work, husband as provider –Care of family a major responsibility –Respect for authority No expectation of government assistance Increased self-reliance regarding economic status Survival focus associated with –Dissatisfaction with income –Security, good income a major priority –Working hard more important than leisure

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25 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 25 World Region Classification RegionGDP/Capita < $20,000 North America, Oceania AU, CA, NZ, US Western EU, IsraelAT, BE, DE, FI, FR, DE, GR, IS, IL, IE, IT, NL, NO, PT, ES, SE, SW, UK Central, Eastern EUBA, HR, KZ, LV, MK, PL, RO, RU, RS CZ, HU, SI AsiaCH, IN, ID, MY, PH, TH, TO HK, JP, KR, SG, TW Middle East, North Africa DZ, EG, IR, JO, LB, MA, SY, TN, TR, PS, YE SA, AE Latin America, Caribbean AR, BO, BR, CL, CO, DO, EC, GT, JM, MX, PA, PE, UY, VE Sub-Sahara AfricaAO, ZA, UG

26 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 26 World Regions Major basis for replacing missing values for Independent Variables ONLY –Many cross national data sets are “incomplete” for smaller, low income countries Missing value replace with mean value for world region cells –Not much of a problem for North America, Oceania or Western Europe, Israel –Not used for any GEM based measures

27 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 27 Linear Additive Regression Model Outcomes (1/3) Dependent VariableWeighted by Population Explained Variance Significant Variables TEA Overall [n=75]87.9 %7 TEA Opportunity [n=75]87.2%8 TEA Necessity [n=75]86.9 %6 Nascent Overall [n=76582.3 %5 Nascent Opportunity [n=74]75.0%5 Nascent Necessity [n=74]78.7%5 New Firm Overall [n=74]92.9 %7 New Firm Opportunity [n=74]92.0 %7 New Firm Necessity [n=74]86.2 %5

28 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 28 Linear Additive Regression Model Outcomes (2/3) Dependent VariableWeighted by Population Explained Variance Significant Variables TEA High Tech Sector [n=73]63.3 %5 TEA Market Impact [n=74]71.6 %4 TEA Job Growth [n=74.3]80.5 %6 TEA Export Oriented [n=74]66.0 %7 TEA Extractive [n=73]85.8 %7 TEA Transformative [n=73]86.9 %6 TEA Business Service [n=73]63.4 %5 TEA Consumer Oriented [n=73]85.1 %4

29 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 29 Linear Additive Regression Model Outcomes (3/3) Dependent VariableWeighted by Population Explained Variance Significant Variables TEA Male: All [n=75]82.5 %5 TEA Male: Opportunity [n=75]84.5 %7 TEA Male: Necessity [n=75]79.9 %5 TEA Female: All [n=75]88.7 %8 TEA Female: Opportunity [n=75]86.5 %8 TEA Female: Necessity [n=75]81.7 %7

30 National Features in Models [1/2] 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 30 Variable descriptionNegativePositiveTotal National Index: Readiness for Entrepreneurship18 All enterprises/100 Persons 18-64 Yrs Old15 Percent Women 15-64 Yrs in Labor Force:200713 Prevalence of informal investors: #/100 Persons13 Traditional vs. Secular/Rational Values10 Per cent Total Population 25-44 Yrs old99 Income Inequality: 2000-2008 Average99 Business Start Regulation Index (Ratio)516 Percent HS Degree or more 15+ years55 Per cent change GDP per capita: 2003-08145 National Index of Support for Entrepreneurship235 Per cent government workers325

31 National Features in Models [2/2] 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 31 Variable descriptionNegativePositiveTotal Percent Men 15-64 Yrs in Labor Force:2007224 Unemployment Rate: Avg 2000-2008314 Physical property rights recognition: Index44 GDP per Capita: PPP International Dollars: 200933 Survival vs self-expressive values123 Per cent agricultural workers: 200922 Costs for commercial legal costs Index22 Gov spending as per cent of GDP112 Annual Pop Growth: 1999-2009 (Avg)112 Per cent service workers: 200911 Intellectual property rights recognition: Index11 Perceived corruption index: 200511 Per cent industry workers: 2009 [not included]

32 Ranking of Major Categories Population Capacity for Business Creation [21/23 models] –Readiness for Entrepreneurship [18] –Percent women in the labor force [13] –Percent population 25-44 years of age [9] National Cultural and Social Support [19/23 models] –Prevalence of informal investors [13] –Emphasis on traditional values [10] Structural Features of the Economy [17/23 models] –Presence of small enterprises [15] Centralized Control of Economic Activity [14/23 models] –Business Start Regulation Index [5/1] –Per cent of all workers in government [2/3] Economic Characteristics [13/23 models] –Income inequality [9] –Per cent change GDP per capita [1/4] –GDP per Capita [3] 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 32

33 World Regions: Business Creation 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 33

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37 Global Regions and Business Creation Factors 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 37 No America, Oceania Western EU Central, Eastern EU: Hi Inc Central, Eastern EU: Lo Inc Asia, Hi Inc MENA, Hi Inc MENA, Lo Inc Asia, Low Inc Latin America Sub-Sahara Africa Number of countries4183952107143 TEA Overall10. Personal readiness -- ---++ + ++ Small businesses -- -- + ++ ++ Working women ++ ++-------++ Informal Investors ---- + ++++ Traditional values -- ++ + Percent young adults ++++++++++---- Income inequality --- --+++++++ Registration costs +++--++- - ---- HS graduates +++++++--- - ---- Cultural support +-----++++ ++ + Government workers +----++-

38 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 38 Policy Implications No “best policies” will fit all situations Improving capacity of individuals to pursue business creation –Takes resources, but might be done quickly—in a generation –Focus on training and education Changing national cultural, social norms –Deserves attention, but a long term project Decentralize economic decision making –Can change some features quickly (business registration) –But reflects basic social contract, political philosophy underlying the entire society, hard to adjust Economic characteristics, economic structure –Basically the consequence or more business creation –May be difficult to adjust, consequence of business creation

39 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 39 Research Lacuna Longitudinal Studies of Business Creation –Available in nine countries Only one in a developing country (China) and that in urban areas –Provide a wealth of information about the nature of and success associated with the start-up process –Difficult to design, relatively expensive, and require a research team commitment for 4-6 years PANEL STUDIES IN DEVELOPING COUNTRIES WOULD MAKE A MAJOR CONTRIBUTON

40 5/9/2015 7:19:57 AMSpain_VI_GEM_ResConf_29Mar11 40 Selected References ‘” ‘’. Barro, Robert J. and Jong-Wha Lee. 2000. International Data on Educational Attainment: Updates and Implications. Cambridge, MA: Harvard University, Center for international Development. Working Paper 42. Bosma, Niels and Jonathan Levie. 2010. Global Entrepreneurship Monitor: 2009 Executive Report. Global Entrepreneurship Research Association. Gartner, W.B., K.G. Shaver, N. M. Carter, and P. D. Reynolds (Eds). (2004). Handbook of Entrepreneurial Dynamics: The Process of Business Creation. Thousand Oaks, CA: Sage Publications. Inglehart, Ronald and Christian Welzel. 2005. Modernization, Cultural Change and Democracy. New York, Cambridge University Press. La Porta, Rafael, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2008. The Economic Consequences of Legal Origins. Journal of Economic Literature 46(2):285-332. Reynolds, Paul D. (2007). New Firm Creation in the U.S.: A PSED I Overview. Hanover, MA: now Publishers, Inc. Reynolds, Paul D. (2010) MENA Region Entrepreneurship. Cairo, Egypt: International Development Research Centre Report. Reynolds, Paul, Niels Bosma, Erkko Autio, Steve Hunt, Natalie De Bono, Isabel Servais, Paloma Lopez-Garcia, and Nancy Chin. (In 2005) Global Entrepreneurship Monitor: Data Collection Design and Implementation: 1998- 2003. Small Business Economics: 24: 205-231. Reynolds, Paul D. and Richard T. Curtin. (2008). Business Creation in the United States: Entry, Startup Activities and the Launch of New Ventures. Chapter 8 in U.S. Small Business Administration. The small Business Economy: A Report to the President. Washington, DC: U.S. Government Printing Office (in press). Reynolds, Paul D. and Richard Curtin (2008). Business Creation in the United States: Panel Study of Entrepreneurial Dynamics II Initial Assessment. Foundations and Trends in Entrepreneurship. V(3):155-307. Reynolds, Paul D. and Richard T. Curtin (Eds). (In press). New Business Creation: An International Perspective. New York City, NY: Springer. Reynolds, Paul D. and Richard T. Curtin (Eds). (2009). New Firm Creation in the United States: Preliminary Explorations with the PSED II Data Set. New York City, NY: Springer. Solt, Frederick. 2009. Standardizing the World Income Inequality Database. Social Science Quarterly. 90(2):231- 242. World Bank. 2009a. Doing Business 2010. New York: Palgrave MacMillan.

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