nep-ent New Economics Papers
on Entrepreneurship
Issue of 2010‒08‒06
thirteen papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Entrepreneurship and Market Size: The Case of Young College Graduates in Italy By Di Addario, Sabrina; Vuri, Daniela
  2. Entrepreneurship, Windfall Gains and Financial Constraints: Evidence from Germany By Dorothea Schäfer; Oleksandr Talavera; Charlie Weir
  3. The Impact of Venture Capital on Innovation Behaviour and Firm Growth By Michael Peneder
  4. Modeling Institutions, Start-ups and Productivity during Transition By Zuzana Brixiova; Balázs Égert
  5. Occupational Choice and Inequality Traps By Roxana Gutierrez-Romero
  6. The Dynamics of the Informal Economy By Roxana Gutierrez-Romero
  7. Chile: Boosting Productivity Growth by Strengthening Competition, Entrepreneurship and Innovation By Cyrille Schwellnus
  8. Financial Constraints and Firm Dynamics By Giulio Bottazzi; Angelo Secchi; Federico Tamagni
  9. Like milk or wine: Does firm performance improve with age? By Alex Coad; Agustí Segarra; Mercedes Teruel
  10. Entrepreneurship and the extensive margin in export growth : a microeconomic accounting of Costa Rica's export growth during 1997-2007 By Lederman, Daniel; Rodriguez-Clare, Andres; Yi Xu, Daniel
  11. On the Evolution of the Firm Size Distribution in an African Economy By Justin Sandefur
  12. Are innovating firms victims or perpetrators ? tax evasion, bribe payments, and the role of external finance in developing countries By Ayyagari, Meghana; Demirguc-Kunt, Asli; Maksimovic, Vojislav
  13. The determinants of innovation: What is the role of risk? By Pierluigi Murro

  1. By: Di Addario, Sabrina (Bank of Italy); Vuri, Daniela (University of Rome Tor Vergata)
    Abstract: We analyze empirically the effects of urban agglomeration on Italian college graduates’ work possibilities as entrepreneurs three years after graduation. We find that each 100,000 inhabitant-increase in the size of the individual’s province of work reduces the chances of being an entrepreneur by 0.2-0.3 percent. This result holds after controlling for regional fixed effects and is robust to instrumenting urbanization. Province’s competition, urban amenities and dis-amenities, cost of labor, earning differentials between employees and self-employed workers, unemployment rates and value added per capita account for 40 percent of the negative urbanization penalty. Our result cannot be explained by the presence of negative large-city differentials in returns to education either. In fact, as long as they succeed in entering the largest markets, young entrepreneurs are able to reap-off the benefits of urbanization externalities: every 100,000-inhabitant increase in the province's population raises entrepreneurs' net monthly income by 0.2-0.3 percent.
    Keywords: labor market transitions, urbanization
    JEL: R12 J24 J21
    Date: 2010–07
  2. By: Dorothea Schäfer (DIW Berlin); Oleksandr Talavera (School of Economics, University of East Anglia); Charlie Weir (Aberdeen Business School)
    Abstract: We investigate the link between the propensity to become an entrepreneur and exogenous release from financial constraints in Germany. This is defined in terms of the movement from employment to self-employment on receipt of a financial windfall. A theoretical framework developing Evans and Jovanovic (1989) is set up and tested with panel data from German households. The results show that financial constraints do exist given that individuals are more likely to start a personal business after receiving a windfall gain. The value of windfall gains has a significant but non linear effect on the decision to become self employed. The data reveal that differences in ability and income affect the change in employment status. We also report that there is no evidence that becoming self employed involves the anticipation of windfall gains.
    Keywords: Entrepreneurship, windfall gains, financial constraints
    JEL: G20 M13
    Date: 2010–05–03
  3. By: Michael Peneder (WIFO)
    Abstract: Proposing a novel research design for firm-level impact studies, I investigate the effects of venture capital financing on corporate performance by applying a two-stage propensity score matching on Austrian micro-data. Controlling for differences in industry, location, legal status, size, age, credit rating, export and innovation behaviour, the findings (i) assert the financing function of venture capital, showing that recipients lacked access to satisfactory alternative sources of capital; (ii) identify selection effects, where venture capital is invested in firms with high performance potential; and finally (iii) confirm the value adding function in terms of a genuine causal impact of venture capital on firm growth, yet not on innovation output.
    Keywords: venture capital, entrepreneurship, firm growth, propensity score matching
    Date: 2010–04–20
  4. By: Zuzana Brixiova; Balázs Égert
    Abstract: The transition paths from plan to market have varied markedly across countries. Central and Eastern European and the Baltic countries, which opted for a fast and profound transformation of their institutions, rapidly narrowed the productivity gap with advanced economies. In contrast, in countries of the Commonwealth of Independent States, which embarked on reforms later and contented with less depth, the productivity gap remains substantial. While the literature has focused mainly on empirical studies, this paper develops a dynamic search model of the firm start-ups that is consistent with the above trends. The model shows that an enabling institutional set up stimulates start-ups of highly productive firms at an earlier stage of transition, underscoring the importance of reforms. The role of the state sector as an employer during transition rises in countries where reforming institutions is particularly costly.<P>Institutions, start-ups et productivité au cours de la période de transition<BR>On a pu constater des passages bien différents d’un système planifié vers un système de marché dans l’ex-bloc soviétique. Les pays de l’Europe centrale et orientale et les pays Baltes ont opté pour une rapide et profonde transformation de leurs institutions et ont réussi à diminuer leur retard en termes de productivité par rapport aux pays industrialisés. En revanche, les réformes étaient mises en place plus lentement et étaient moins complètes dans les pays de la Communauté des États indépendants où les écart de productivité restent importants. La littérature existante étudie ce phénomène empiriquement. Cette étude présente un modèle de recherche dynamique qui est à même de répliquer la dynamique décrit ci-dessus. Le modèle démontre l’importance des institutions favorables à la création de nouvelles entreprises de productivité élevée au début de la transition, ce qui confirme l’importance des réformes. Le rôle du secteur public en tant qu’employeur devient plus important en période de transition dans les pays où la mise en place des réformes institutionnelles est particulièrement coûteuse.
    Keywords: productivity, transition, Start-ups, dynamic search model, business climate, productivité, transition, Start-ups, modèle de recherche dynamique, climat commercial
    JEL: C61 O14 O43 O57
    Date: 2010–05–20
  5. By: Roxana Gutierrez-Romero
    Abstract: The paper presents a model where individuals decide to become workers or entrepreneurs in the presence of capital constraints and where individuals differ in wealth levels. The model shows that the higher the initial level of inequality in wealth is, the lower the long run aggregate wealth of the economy and the higher the long run inequality will be.
    Keywords: Occupational Choice, Wealth distribution and Inequality.
    JEL: D9 D31 D50
    Date: 2010
  6. By: Roxana Gutierrez-Romero
    Abstract: This paper analyses the factors that give rise to the existence of the informal economy and how it evolves over time. Using an occupational-choice model the paper shows that at early stages of development, informal and formal markets coexists, but in the long-run the size of the informal economy can decline depending on the initial distribution of wealth. The model shows that the higher the initial wealth inequality the larger the size of the informal economy and the higher the wealth inequality will be in the long run. The paper calibrates the model using numerical simulations.
    Keywords: informal economy, occupational choice and inequality
    JEL: D31 K4
    Date: 2010
  7. By: Cyrille Schwellnus
    Abstract: Productivity growth has declined since the late 1990s, slowing the catching-up process. Structural reforms to strengthen competition, entrepreneurship and innovation would go a long way toward enhancing it. Recent competition policy reforms that strengthen enforcement of cartel law must now be implemented effectively. The National Economic Prosecutor should receive sufficient resources and the ceiling on fines against cartels, which has recently been raised, may need to be reviewed again. Entrepreneurship should be strengthened by reducing regulatory “red tape” for start-ups and simplifying bankruptcy procedures. Recent reforms to the innovation policy framework are welcome but the focus on sectoral priority clusters will need to be accompanied by appropriate monitoring procedures and sunset clauses for public support. This Working Paper relates to the 2010 Economic Survey of Chile (<P>Chili : Augmenter la croissance de la productivité par le renforcement de la concurrence, l'entrepreneuriat et l'innovation<BR>Le déclin de la croissance de la productivité observé depuis la fin des années 90 ralentit le processus de rattrapage. Des réformes structurelles visant à renforcer la concurrence, l’entrepreneuriat et l’innovation ouvriraient largement la voie à un raffermissement de cette croissance. Il convient désormais de mettre concrètement en oeuvre les récentes réformes de la politique de la concurrence visant à consolider l’application de la législation sur les ententes. Il faut doter le Procureur économique national de ressources suffisantes et revoir éventuellement le plafond – déjà relevé il y a peu – des amendes frappant les auteurs d’ententes. L’entrepreneuriat doit être renforcé grâce à l’allègement de la réglementation qui pèse sur la création d’entreprise et à la simplification des procédures de faillite. Les toutes dernières réformes du cadre de la politique de l’innovation vont dans le bon sens mais il faudra assortir les pôles sectoriels prioritaires de procédures de suivi adaptées et de clauses de caducité du soutien de l’État. Ce document de travail se rapporte à l’Étude économique de l’OCDE du Chili 2010 (
    Keywords: growth, productivity, competition, innovation, regulation, Chile, productivité, croissance, réglementation, innovation, concurrence, Chili
    JEL: F43 L16 L5 O3 O4 O54
    Date: 2010–06–16
  8. By: Giulio Bottazzi; Angelo Secchi; Federico Tamagni
    Abstract: The ability of firms to access external financial resources represents a key factor influencing several dimensions of firms’ dynamics. However, while recent qualitative evidence suggests the existence of heterogeneous and asymmetric reactions of firms to financing constraints (FC) problems, the literature on the empirics of size-growth dynamics focuses on the effects of FC on average growth rate and on the long term evolution of the firm size distribution. In this paper we extend the analysis to a wider range of possible FC effects on firm growth dynamics, including its autoregressive and heteroskedastic structure and the degree of asymmetry in growth shocks distribution. We measure FC with an official credit rating index, which directly captures the borrowers’ opinion about firm’s financial soundness deciding, in turn, the availability and cost of its external resources. Our broader investigation reveals that FC significantly affect firm’s performance and operate through several channels. In the short run, they reduce expected firm growth rate, induce anti-correlation in growth shocks and a milder dependence of growth rates volatility on size, and also operate through asymmetric “threshold effects”, either preventing potentially fast growing firms from enjoying attractive growth opportunities, or further deteriorating the growth prospects of already slow growing firms. The subdiffusive nature of the growth process of constrained firms is compatible with the observed differences in their size distribution.
    Keywords: Financial constraints, Firm size distribution, Firm growth, Risk rating, Asymmetric exponential power distribution
    JEL: C14 D21 G30 L11
    Date: 2010–07–20
  9. By: Alex Coad; Agustí Segarra; Mercedes Teruel
    Abstract: Our empirical literature review shows that little is known about how firm performance changes with age, presumably because of the paucity of data on firm age. For Spanish manufacturing firms, we analyse the firm performance related to firm age between 1998 and 2006. We find evidence that firms improve with age, because ageing firms are observed to have steadily increasing levels of productivity, higher profits, larger size, lower debt ratios, and higher equity ratios. Furthermore, older firms are better able to convert sales growth into subsequent growth of profits and productivity. On the other hand, we also found evidence that firm performance deteriorates with age. Older firms have lower expected growth rates of sales, profits and productivity, they have lower profitability levels (when other variables such as size are controlled for), and also that they appear to be less capable to convert employment growth into growth of sales, profits and productivity.
    Keywords: firm age, firm growth, LAD, financial structure, vector autoregression Length 31 pages
    JEL: L25 L20
    Date: 2010–07
  10. By: Lederman, Daniel; Rodriguez-Clare, Andres; Yi Xu, Daniel
    Abstract: The literature on the correlation between exports and economic development runs deep into the history of economic thought and permeates policy debates. This paper studies the microeconomic structure of export growth in Costa Rica, with special emphasis on the extensive margin of trade, encompassing new exporting firms, new products, and new export markets, as well as the unit values of new versus incumbent products. The data suggest that few new firms survive the test of exporting -- more than 40 percent of firms exit export activities after one year -- and this firm turnover is associated with a steady deterioration of export unit values (prices). Furthermore, most new export products are associated with product switching by incumbent exporting firms. The typical new product introduced by incumbent firms tended to be priced at about 90 percent of the unit values of incumbent products. In contrast, the usual suspected obstacles to export growth, such as the inability of small firms to enter exporting activities or to grow their exports, appear to be important sources of export growth. In fact, the smallest exporting firms experienced the fastest growth in their export values. Some of these results are compared withthose from other countries that have been examined in related literature.
    Keywords: Economic Theory&Research,Markets and Market Access,Airports and Air Services,Microfinance,Tax Law
    Date: 2010–07–01
  11. By: Justin Sandefur
    Abstract: The size of the informal sector is commonly associated with low per capita GDP and a poor business environment. Recent episodes of reform and growth in several African countries appear to contradict this pattern. From the mid 1980’s onward, Ghana underwent dramatic liberalization and achieved steady growth, yet average firm size in the manufacturing sector fell from 19 to just 9 employees between 1987 and 2003. I use a new panel of Ghanaian firms, spanning 17 years immediately post-reform, to model firm dynamics that differ markedly from well-established ‘stylized facts’ in the empirical literature from other regions. In contrast with American and European firms, entry of new firms and selection on observable characteristics, rather than within-firm growth, dominates industrial evolution in Ghana.
    Date: 2010
  12. By: Ayyagari, Meghana; Demirguc-Kunt, Asli; Maksimovic, Vojislav
    Abstract: This paper investigates corruption and tax evasion and their firm-level determinants across 25,000 firms in 57 countries, a large fraction of which are small and medium enterprises in developing countries. Firms that pay more bribes also evade more taxes. Corruption acts as a tax on innovation, particularly that of small and young firms. Innovating firms pay a larger percentage of their revenues in bribes to government officials than non-innovating firms. They do not, however, pay more protection money to private parties than other firms. Comparing the magnitudes of bribes and taxes evaded, innovating firms and firms that use formal finance are more likely to be net victims. The findings point to the challenges facing innovators in developing countries and the role of banks in curbing corruption and tax evasion.
    Keywords: Access to Finance,Taxation&Subsidies,Public Sector Corruption&Anticorruption Measures,Debt Markets,Public Sector Economics
    Date: 2010–07–01
  13. By: Pierluigi Murro (University of Bari)
    Abstract: Because of its importance in understanding and explaining growth, the topic of innovation has received a huge attention in the economic literature. However, our knowledge of the factors that inuence in- novation and its related activities is not as exhaustive as it could be. The present study aims at contributing to analyse the determinants of innovation, with a special focus on rm risk. Employing a rich sample of Italian manufacturing rms, we tested for the impact on innovation of the riskiness of the rm, as proxied by the probability of default. We found that riskiness of enterprise reduces the tendency to innovate for the rms. The main channel through which rm risk aects innovation capability appears to be that of innovation nancing.
    Keywords: Technological Change; Financial Risk and Risk Management
    JEL: O3 G32
    Date: 2010–07

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