CQ 2: Can there be too much entrepreneurship in a country?
6 important questions on CQ 2: Can there be too much entrepreneurship in a country?
How can we link entrepreneurship and economic growth and what are the implications?
- The effect of entrepreneurial activity on national growth (Van Stel, Carree and Thurik, 2005)
- Implication: the effect of entrepreneurial activity on economic growth depends on the start-up motive (opportunity versus necessity)
- Is entrepreneurship of added value in a production function? (Audretsch & Keilbach, 2004)
- Implication: 'entrepreneurship capital' makes traditional input factors more productive
- Can there be too much entrepreneurship in a country? (Carree, van Stel, Thurik & Wennekers, 2002)
- Implication 1: every country has an 'optimal' level of entrepreneurship
- Implication 2: having too much entrepreneurship hampers growth
What are the finding of 'the effect of entrepreneurial activity on national growth' by Van Stel, Carree and Thurik (2005)? (4)
- No relationship between TEA and economic growth
- Significant relationship between TEA x GDP per capita (interaction term) and economic growth
- Effect of entrepreneurship on national economic growth increases with per capita income
- The 'quality' of TEA is higher in countries with higher GDP
- Involved in TEA because of the identification of an appealing business opportunity (opportunity-driven)
- Or because of having no better work alternatives (necessity-driven)?
What are the findings of 'is entrepreneurship of added value in a production function?' by Audretsch & Keilbach (2004)?
- Does adding 'entrepreneurial capital' to the standard Cobb-Douglas production function help to explain productivity differences across regions?
- Higher output through knowledge spillovers, competition and diversity
- Authors reason that 'entrepreneurial capital' manifests itself in start-up activity
- Several different measures of entrepreneurship capital
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For which of the start-up rates do you expect the largest effect?
- Start-up rate (E) (#startups relative to the population
- Start-up rate High Technologie (E HT)
- Start-up rate ICT (E ICT)
- An increase of a production factor by 1% implies beta increase in output
- A bit contrary to what Audretsch & Keilbach (2004) suggest, the effects of (E HT) and (E ICT) are relatively large
- The mean of (E HT) and (E ICT) is much lower than the mean of (E), so a 1% increase corresponds to a much smaller number of new businesses
What are the questions that need to be answered for 'Can there be too much entrepreneurship in a country'?
- Analysis of business ownership rate ('stock' of businesses in a country, result of entries/exits)
- Model 1: How is the equilibrium rate of business ownership related to the stage of economic development?
- Business ownership as function of GDP
- Model 2: To what extent does deviating from the equilibrium rate of business ownership hamper economic growth?
What are the implications and conclusion from 'Can there be too much entrepreneurship in a country?'
- 'Easy entry' and 'easy exit' stresses by Ayyagari et al (2007)
- "To induce dynamic entrepreneurial competition we require the fulfilment of only one condition: guaranteeing free entrepreneurial entry into any market where profit opportunities may be perceived to exist
- "but also that exit free of stigma and financial burdens has to be safeguarded
- Conclusion: entrepreneurship policies should take into account the number of entrepreneurs already in the economy
- And other characteristics of the economy (ecosystems)/ composition of the labour force
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