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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
[[email protected]]
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What national factors are associated
with measures of business creation?
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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
Personal Context:
Support for Entrepreneurship, Potential for Financial Support
Personal Attributes
•Age
•Gender
•Education
•Work Experience
•Confidence in ability
to create buss
•Fear of failure
Nascent
Enterprise
New
Business
Total Entrepreneurial Activity
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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
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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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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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Prevalence of TEA Participation by World Region and Motivation
20
18
#/100 Persons 18-64 Years Old
16
14
12
10
8
6
4
2
0
Western
East
Middle
North
Asia:Develo
Europe:Dev Europe:Dev East:Develo America,
ped [5]
eloped [18] eloped [3]
ped [2] Oceania:De
East
Middle
Latin
Africa:
Asia:Develo
Europe:Dev East:Develo
America:De Developing
ping [7]
eloping [10] ping [9]
veloping
[3]
Necessity
1.24
.72
1.61
.85
1.48
2.47
3.50
5.70
5.91
8.29
Opportunity
3.37
4.31
4.34
8.10
8.74
3.92
9.86
8.80
12.62
10.89
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Prevalence Rates, Selected Firm Births
Type of business activity
#/100 Adults
Corr w/
TEA Overall
TEA Overall
11.5
1.0
Nascent Entrepreneurs
6.6
0.88
New Firm Owner-managers
5.4
0.85
TEA Overall: Males
13.5
0.99
TEA Overall: Females
9.4
0.97
TEA ventures: High Tech Sectors
1.4
0.68
TEA ventures: Market impact: medium to high
1.6
0.88
TEA Ventures: Growth oriented: 20+ jobs in five years
1.0
0.33
TEA Ventures: Export oriented: 25+ % internat’l customers
0.8
0.28
TEA ventures: extractive sectors
0.6
0.73
TEA ventures: transformative
2.4
0.90
TEA ventures: business services
1.2
0.27
TEA ventures: consumer oriented
4.6
0.97
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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
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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.
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Independent Variables: Economic
Characteristics
Source
Yrs
TEA r
[no wt]
TEA r
[pop wt]
GDP per capita
WEO
2009
-.61
-.57
GDP per capita
increase
WEO
20052008
0.28
Human population
increase
US
1999Census 2009
0.08
[NS]
0.48
Income inequality:
GINI index
Solt
(2009)
0.61
0.40
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20002008
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0.39
13
Independent Variables: Structural Features
Source
Yrs
TEA r
[no wt]
TEA r
[pop wt]
Firm size: enterprises/
100 adults
GEM
20002009
0.71
0.78
Agriculture workers/
all workers
World
Bank
20002007
0.59
0.63
Industry workers/
all workers
World
Bank
20002007
-.42
-.59
Service workers/
all workers
World
Bank
20002007
-.47
-.55
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Independent Variables: Centralized Control
of Economic Activity (1/2)
Source
Yrs
TEA r
[no wt]
TEA r
[pop wt]
Per cent workers in nonprivate 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 2009
Business
0.52
0.46
Greater commercial legal
costs index
WB Doing 2009
Business
0.29
0.18
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Independent Variables: Centralized Control
of Economic Activity (1/2)
Source
TEA r
[no wt]
TEA r
[pop wt]
IPR Index 2009
Report
-.49
-.40
Recognition of intellectual IPR Index 2009
property rights index
Report
-.57
-.64
Perceived Corruption
0.51
0.53
Recognition of physical
property rights index
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Yrs
Transpare 2005
ncy Int’al
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Independent Variables: Population Capacity
for Business Creation
Source
Yrs
TEA r
[no wt]
TEA r
[pop wt]
Entrepreneurial ready adults
prevalence index [3 items]
GEM
20002009
0.70
0.72
Percent 25-44 yrs old
persons in population
US Census
2007
-.36
-.35
Percent adults with high
school degree or more educ
Barro & Lee
2000
-.35
-.35
Men: % labor force
participation
World Bank
2007
0.43
0.60
Women: % labor force
participation
World Bank
2007
0.00
[NS]
0.09
[NS]
Unemployment rate
World Bank
20002008
-.03
[NS]
-.12
[NS]
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Independent Variables: National Cultural
and Social Norms
Source
Yrs
TEA r
[no wt]
TEA r
[pop wt]
GEM
2000-2009
0.70
0.53
Cultural Support for
GEM
Entrepreneurship [3 items]
2000-2009
0.40
0.55
Traditional versus
Secular/Rational Values
World Values
Survey
1981-2006
-.62
-.26
Survival versus SelfExpressive Values
World Values
Survey
1981-2006
-.13
[NS]
-.24
Prevalence of Informal
Investors
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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
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R*R = 0.50
LogTEA R*R
= 0.54
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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
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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
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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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World Region Classification
Region
GDP/Capita < $20,000
GDP/Capita < $20,000
North America,
Oceania
AU, CA, NZ, US
Western EU, Israel
AT, BE, DE, FI, FR, DE, GR, IS, IL,
IE, IT, NL, NO, PT, ES, SE, SW, UK
Central, Eastern EU
BA, HR, KZ, LV, MK, PL,
RO, RU, RS
CZ, HU, SI
Asia
CH, 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 Africa
AO, ZA, UG
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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
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Linear Additive Regression Model Outcomes
(1/3)
Dependent Variable
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Weighted 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=765
82.3 %
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
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Linear Additive Regression Model Outcomes
(2/3)
Dependent Variable
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Weighted 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
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Linear Additive Regression Model Outcomes
(3/3)
Dependent Variable
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Weighted 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
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National Features in Models [1/2]
Variable description
Negative
Positive
Total
National Index: Readiness for Entrepreneurship
18
18
All enterprises/100 Persons 18-64 Yrs Old
15
15
Percent Women 15-64 Yrs in Labor Force:2007
13
13
Prevalence of informal investors: #/100 Persons
13
13
Traditional vs. Secular/Rational Values
10
10
Per cent Total Population 25-44 Yrs old
9
9
Income Inequality: 2000-2008 Average
9
9
1
6
5
5
Business Start Regulation Index (Ratio)
5
Percent HS Degree or more 15+ years
Per cent change GDP per capita: 2003-08
1
4
5
National Index of Support for Entrepreneurship
2
3
5
Per cent government workers
3
2
5
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National Features in Models [2/2]
Variable description
Negative
Positive
Total
Percent Men 15-64 Yrs in Labor Force:2007
2
2
4
Unemployment Rate: Avg 2000-2008
3
1
4
Physical property rights recognition: Index
4
4
GDP per Capita: PPP International Dollars: 2009
3
3
Survival vs self-expressive values
1
Per cent agricultural workers: 2009
2
2
Costs for commercial legal costs Index
2
2
Gov spending as per cent of GDP
1
1
2
Annual Pop Growth: 1999-2009 (Avg)
1
1
2
Per cent service workers: 2009
1
1
Intellectual property rights recognition: Index
1
1
Perceived corruption index: 2005
1
2
3
1
Per cent industry workers: 2009 [not included]
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Ranking of Major Categories
•
Population Capacity for Business Creation [21/23 models]
–
–
–
•
National Cultural and Social Support [19/23 models]
–
–
•
Presence of small enterprises [15]
Centralized Control of Economic Activity [14/23 models]
–
–
•
Prevalence of informal investors [13]
Emphasis on traditional values [10]
Structural Features of the Economy [17/23 models]
–
•
Readiness for Entrepreneurship [18]
Percent women in the labor force [13]
Percent population 25-44 years of age [9]
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]
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World Regions: Business Creation
Opportunity
Necessity
20
18
Prevalance Rate (#/100 18-64 years old)
16
14
12
10
8
6
4
2
0
Asia
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West EU
Central,East
EU
MENA
No Amer,
Oceania
Central, East
EU
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MENA
Asia
Latin America
Sub-Saraha
Africa
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Government
workers
Cultural support
HS graduates
Registration costs
Income inequality
Percent young
adults
Traditional values
Informal Investors
Working women
Small businesses
Personal readiness
TEA Overall
Factors in Business Creation - North America,
Oceania, Hi Income
Difference from Global Mean
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
34
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Government
workers
Cultural support
HS graduates
Registration costs
Income inequality
Percent young
adults
Traditional values
Informal Investors
Working women
Small businesses
Personal readiness
TEA Overall
Factors in Business Creation - Western Europe, Hi
Income
Difference from Global Mean
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
-1.2
35
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Government workers
Cultural support
HS graduates
Registration costs
Income inequality
Percent young adults
Traditional values
Informal Investors
Working women
Small businesses
Personal readiness
TEA Overall
Factors in Business Creation - MENA, Low Income
Difference from Global Mean
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
36
Number of countries
TEA Overall
Cultural support
Government workers
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Sub-Sahara Africa
Latin America
Asia, Low Inc
MENA, Lo Inc
MENA, Hi Inc
Asia, Hi Inc
Central, Eastern
EU: Lo Inc
4
18
3
9
5
2
10
7
14
3
10.3
5.1
5.0
6.4
5.1
6.4
10.8
14.8
17.6
18.5
--
--
---
+
+
++
++
--
--
-
-
--
+
+
++
+
+
++
--
+
--
+
--
---
----
++
++++
-+
++
---
-
+
+
++
+++
-
++
+++
++
---++++
-----
+
-
--
-
+
-
-
--
Personal readiness
Small businesses
Working women
Informal Investors
Traditional values
Percent young adults
Income inequality
Registration costs
HS graduates
Central, Eastern
EU: Hi Inc
Western EU
No America,
Oceania
Global Regions and Business Creation Factors
++
-+++
+
+
+
++
+++++
++
+
--
-
-
+++
+
++
-
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++
++
+
++
37
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
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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
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Selected References
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
‘http://www.gemconsortium.org”
‘http://www.psed.isr.umich.edu’.
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: 19982003. 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):231242.
World Bank. 2009a. Doing Business 2010. New York: Palgrave MacMillan.
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