nep-ent New Economics Papers
on Entrepreneurship
Issue of 2014‒09‒05
eleven papers chosen by
Marcus Dejardin
Université de Namur

  1. Institutions, corruption and entrepreneurship: Indonesian evidences By Julien Hanoteau; Virginie Vial
  2. Post-Investment Migration of Canadian Venture Capital-Backed New Technology-Based Firms By Cécile Carpentier; Jean-Marc Suret
  3. Constraints to women’s entrepreneurship and welfare in developing countries By Dorothée Boccanfuso; Jonathan Goyette; Cho Euphrasie Monique ANGBO
  4. The contribution of women microenterprises to poverty alleviation in urban Sudan By Khadra Hassan Siddig; Mohamed Osman Hegazi
  5. The role of microenterprises in empowering women in urban Sudan By Khadra Hassan Siddig; Mohamed Osman Hegazi
  6. Rationality of Self-Employment: Do Female and Male Entrepreneurs Differ? By Bögenhold, Dieter; Fachinger, Uwe
  7. Small business tax policy, informality, and tax evasion -- evidence from Georgia By Bruhn, Miriam; Loeprick, Jan
  8. The Effect of R&D Subsidy for Small and Medium Enterprises By Chanyoung Hong; Jung In Yeon; Jeong-Dong Lee
  9. EU investment support for small and medium-sized enterprises in southern Europe: To be recommended? By Forstner, Bernhard; Koester, Ulrich
  11. Does local financial development matter for firm lifecycle in India ? By Ayyagari, Meghana; Demirguc-Kunt, Asli; Maksimovic, Vojislav

  1. By: Julien Hanoteau; Virginie Vial
    Abstract: Baumol (1990) famously argues that entrepreneurs are individuals who exploit opportunities, be they in the productive (enterprises) or the unproductive sector (lobbying, rent-seeking, corruption…), and that the prevalence of one or the other type of entrepreneurship depends on the quality of surrounding institutions: high quality institutions foster productive entrepreneurship, whereas failing institutions trigger unproductive entrepreneurship. However, recent empirical studies evidence that the effect of institutions quality on productive entrepreneurship might be more ambiguous. Dreher and Gassebner (2013) observe that if poor quality of institutions is detrimental to firms’ entry, this effect is nonetheless moderated in presence of corruption. Our central argument in this paper, is that productive entrepreneurs may be forced by their institutional environment to bribe so as to be able to start and develop their venture. As a result, a same quality of institutions has different effects on bribing and non-bribing productive entrepreneurships. This has strong implications for the literature addressing the effect of institutions on entrepreneurship. We complement Baumol’s (1990) theory, by acknowledging that productive entrepreneurs do not form a homogenous population, but have characteristics that are shaped by the institutional context in which their venture is embedded. This recognition is likely to unveil the true effects of institutions on productive entrepreneurship, whereas analyses that make a clear distinction between productive and unproductive entrepreneurship and treat the former as a homogenous population, are likely to result in misleading observations. This contribute to the embryonic literature regarding the role of entrepreneurship in the development of emerging countries (Bruton et al., 2008; Naudé, 2010; Peng and Zhou, 2005; Stenholm et al. 2013). We use panel data econometrics, with a unique dataset that merges two databases, the Statistik Industri from the Indonesian Bureau of public statistics (BPS) and the Indonesian Family Life Survey (IFLS) from the Rand Corporation. It enables us to analyze the effect of varying formal and informal institutions quality, across regional districts (190), on the 5-digit sector-level (321) entry rates of bribing and non-bribing new ventures, over the period 2001-2007. Although cross-country studies are more robust (Bruton et al., 2010), Indonesia compensates with its institutional features (administrative inefficiency, pervasive corruption, ethnic diversity…) that are common to many emerging countries (Miguel et al., 2005) while presenting large within institutional quality variations, and will therefore allow an easier generalization of our findings. Analyzing patterns across districts within a single country permits to use homogenous survey instruments of institutions and consistently available data on the bribing component of entrepreneurship, which is rarely the case for cross country regressions and reduces some of their problems of measurement and omitted variables (Miguel et al., 2005; Sobel, 2008).The results show that regulative and resource-allocative institutions are significant factors impacting the rate of entrepreneurship. Moreover, the results confirm our main conjecture that these institutions have differentiated effects on bribing and non-bribing entrepreneurship, taken at the local and 5-digit sector level. On the one hand, deficient regulative (low quality of business permits delivery and excessive indirect taxations) and resource-allocative institutions (poor quality of access to transport infrastructures and services) are detrimental to entrepreneurship. On the other hand, we find that bribing new ventures suffer less than other ventures, from a deteriorated access to high quality business permits delivery and transport infrastructures and services. Our results also show that in districts and 5-digit sectors with a poor supply of banking services, bribing entrepreneurs have a better entry rate than others, suggesting that they have a better access to financings through corruption.
    Keywords: Indonesia, Developing countries, Miscellaneous
    Date: 2014–07–03
  2. By: Cécile Carpentier; Jean-Marc Suret
    Abstract: Numerous innovative Canadian new technology-based firms migrate abroad when local venture capitalists exit. This article aims to determine how common this type of exit is, and to understand the motivations behind and the consequences of these migrations. We use a mixed-methodology approach, combining quantitative and qualitative evidence. At the market level, we find that nearly half of successful venture capital exits from Canadian firms result in migration. Using a pattern matching approach with 14 cases, we show that these migrations are motivated mainly by strategic considerations in the context of a small country with few strategic partners and a small market for innovative products. Acquired firms become truncated companies with declining activities. Only a small proportion of bought-out entrepreneurs reinvest in the local economy. This phenomenon probably has strong negative effects on the creation of new large technological firms and clusters.
    Keywords: Migration, venture capital, exit, trade sale,
    JEL: L26 M13 G24 G28
    Date: 2014–04–01
  3. By: Dorothée Boccanfuso; Jonathan Goyette; Cho Euphrasie Monique ANGBO
    Abstract: Women in developing countries invest a larger part of their income in their children’s nutrition, health and education than men (Hoddinott et al., 1995; Strauss et al., 2000; Gammage, 2006; Quisumbing et al., 2006). As a result, financial resources acquired by women bring forth a long-time reduction in fertility and birth-spacing as well as an allocation of resources in favor of children which generates improvements in welfare (Dyson et al., 1983; Caldwell et al., 1987; Hogan, et al., 1999; Eswaran, 2002; Schady et al., 2008; Mukhopadhyay et al., 2011). Furthermore, according to the World Bank (2011), almost 35% of the world’s firms are owned by women. And a large percentage of these companies are in developing countries (Jones, 2012). However, few empirical studies estimate the causal effect of women’s entrepreneurship on economic outcomes. Some authors examine constraints to entrepreneurship in general (Brunetti et al., 1997; Batra et al., 2003; Banerjee et al., 2004; Aterido et al., 2009). Others study specific constraints to women’s entrepreneurship (Hampel-Milagrosa, 2010; Aterido et al., 2011; Jones, 2012). In general, these constraints are economic, financial, institutional or structural, and may be more restrictive for small businesses. But, to the best of our knowledge, there are no empirical evidence on the impact of women entrepreneurs on welfare for a large group of countries. This is largely due to difficulties raised by endogeneity issues. Most likely, causality runs in both directions. Indeed, an increase in the proportion of women entrepreneurs may cause an increase in welfare due to the aforementioned reasons. But an increase in welfare may also generate an increase in women’s access to the workplace through institutional development promoting women’s emancipation. Also, there exists a joint determination problem in that the proportion of women entrepreneurs and the level of welfare may be the result of a third, unobserved, factor. The main objective of this study is to examine whether women’s income-generating activities significantly improve welfare in developing countries. A second objective is to identify constraints to women’s entrepreneurship which could then serve as aid targets to improve women’s status and their economic impact in developing countries.In this study, we examine the effect of the variation in the proportion of women entrepreneurs on welfare in 120 countries between 2005 and 2010. We use different proxies for welfare: the rate of infant and child mortality, Gross Domestic Product (GDP) per capita, Human Development Index (HDI) and the level of education indicator of the HDI. The data on women entrepreneurs comes from the World Business Environment Survey (WBES) and is based on formal manufacturing firms. Our approach uses instrumental variables to take into account the endogenous relationship between women’s entrepreneurship and welfare. We use as instruments a set of constraints to women’s entrepreneurship that we identify as key in a woman’s decision to become an entrepreneur. These instruments respect the exclusion restriction as these constraints are only correlated to the dependent variable (welfare) through their direct effect on the proportion of women entrepreneurs. Indeed, these constraints act as a sorting mechanism between male and female entrepreneurs, and only then the outcome of this sorting affects welfare through the channels suggested above. In order to take into account the problem of joint determination, we control for fixed effects at the country level. We also examine certain characteristics previously identified as important in explaining the effect of women on welfare namely health and education expenses and some macroeconomic variables like inflation and lagged GDP per capita. We also examine the interaction between women’s entrepreneurship and the level of aid received by a country and seek among the different constraints to women’s entrepreneurship which are more prone to be responsive aid targets.Based on preliminary results, we find that an aid-policy encouraging an increase of 1% in the proportion of women entrepreneurs could decrease the rate of infant mortality by as much as 18%. We also find a one-for-one relationship between the proportion of women entrepreneurs and GDP per capita.
    Keywords: developing countries, Developing countries, Labor market issues
    Date: 2014–07–03
  4. By: Khadra Hassan Siddig; Mohamed Osman Hegazi
    Abstract: In this context, there is a need to assess the effectiveness of microenterprises in improving the socioeconomic conditions of women entrepreneurs and in alleviating poverty.Accordingly, the thrust of the study lies in identifying the effect of women microenterpriseson poverty alleviation in urban Sudan, taking the Khartoum state as a case. The study’s focus is on women with microenterprises or engaged in trading, production, and selling in the informal sector. Hence, the population of the study is the 104 thousand of the self-employed females in KS.350 respondents are selected and random sampling technique is applied considering location of project (market-based, home-based, and street sellers), locality (all KS localities, namely Omdorman, Karrari, Ombada, Khartoum, Jabalawlia, Bahri, Shargalneel) and type of activity (20 different activities are covered). Primary data are collected using a structured questionnaire and individual interviews held with female entrepreneurs in KS as well as by optical observation by visiting the respondents in their locations. Collected data include (1) socioeconomic characteristics including age, marital status, education, family size and housing and place of residence; (2) project related data covering projecttype, activityandlocation; (3) entrepreneurial motivations, opinions, attitudes, perceptions and viewpoints; (4) information on familyincomeand assetsbeforeand after the establishment of the project; (5) sources of funding; (6) marketing, competition and overall performance; and (7) problems and constrains. Secondary data are gathered from various sources including national surveys, censuses and previous studies. Both primary and secondary data are analysed using descriptive statistics and cross tabulation imbedded in the advanced data analysis module of Microsoft Excel. Major findings of the study show that the implemented poverty alleviations plans have contributed to alleviate poverty in the study area, but poverty still widespread. Despite the significant role of the government plans, the average performance remained minor and limited. The study results show that poverty has a woman’s face as there are more women than men who suffer from abject poverty in urban Sudan. It is also revealed that, women’s microenterprises are important elements for an effective poverty reduction strategy, as many respondents confirmed that their business is the only source of family income, which support the assumption that women’ projects is a solution for many families to move out of poverty. This is confirmed as well by the findings that 67% of the women entrepreneurs consumed the income they gained from their projects on daily basic needs, mainly food for the family, especially for women-headed household.Female entrepreneurs' age, marital status and education and family size are all found to be influential factors for their entry into business and in general the culture of self-employment is getting widely accepted with lesser rush to be employed by the public sector. This being reported, female entrepreneurs have also identified several constrains and challenges such as the limited access to finance, difficulties in the marketing of their products, the complex administrative procedures and the government’s fees and taxes.
    Keywords: Sudan, Developing countries, Developing countries
    Date: 2014–07–03
  5. By: Khadra Hassan Siddig; Mohamed Osman Hegazi
    Abstract: This study highlights the role of Sudanese women entrepreneur in changing their life style by running small-micro business activities; also the study investigates how small-micro business activities affect women’s empowerment. And what are the strategies can be stated to empower women and minimize the obstacles that face their business The study adopted the descriptive and analytical approaches making use of both secondary and primary data. The study’s focus is on women with microenterprises or engaged in trading, production, and selling in the informal sector. Hence, the population of the study is the 104 thousand of the self-employed females in KS.350 respondents are selected and random sampling technique is applied considering location of project (market-based, home-based, and street sellers), locality (all KS localities, namely Oumdorman, Karrari, Oumbada, Khartoum, Jabalawlia, Bahri, Shargalneel) and type of activity (20 different activities are covered). Primary data are collected using a structured questionnaire and individual interviewsheld with female entrepreneurs in KS as well as by optical observation by visiting the respondents in their locations. Collected data include (1) socioeconomic characteristics including age, marital status, education,family size and housing and place of residence; (2) project related data covering projecttype, activityandlocation; (3) entrepreneurial motivations, opinions, attitudes, perceptions and viewpoints; (4) information on familyincomeand assetsbeforeandafter the establishment of the project; (5) sources of funding; (6) marketing, competition and overall performance; and (7) problems and constrains. Secondary data are gathered from various sources including national surveys, censuses and previous studies. Both primary and secondary data are analysed using descriptive statistics and cross tabulation imbedded in Microsoft Excel software package. The main findings of this study revealed that participation of women in small-micro business activities helps in promoting women’s empowerment in both economic and social dimensions. Economic impact and economic empowerment on businesswomen evident in their ability to benefit from their small businesses and increased domestic income level, and creates independence in terms of having theirown income and control of income and ability to use their income contributing to householdpurchases and financingthe education of their children. This is confirmed as well by the findings that before the project only (16%) of the female entrepreneurs indicated that their Income covers the requirement of the family, while after the project (57%) of the respondent gave this response. And this confirms that the family income was increased and thus family conditions had improved due to the project. Also the female entrepreneurs own and manage their small businesses themselves,90% of the respondent reported that they have the ownership of the project, and they haven’t difficulties in the management of the project and it is a high percentage, and this mean that the female entrepreneurs is stronger enough to control over her resources. Economic empowerment also reveals in terms of taking loans from financial institutions and payment of the loan. The study result indicate that social impact on the female entrepreneurs was reflected in their ability to share with their husbands decisions and became more influence in the decision-making matters relating their household, their ability to make their decisions to contribute to children's education, health, the housing improvement, food consumption and savings, the majority of respondents reported that they are spending their own money on school fees and payments for health care expenses. Also the majority of the female entrepreneurs reported that they relied on themselves and became more self-esteem and confidence and became more participation through community and developing social networks, also most of the female entrepreneurs reported that they gained new skills and training and access to knowledge.
    Keywords: Sudan, Developing countries, Business cycles
    Date: 2014–07–03
  6. By: Bögenhold, Dieter; Fachinger, Uwe
    Abstract: It is not clear, whether changes in self-employment are primarily driven by the necessity to take part in the labour market, or if those activities reflect new modes of labour market integration revealing new opportunities and markets, which are especially due in wide parts to the service and health care sector. A fundamental question is how gender matters when investigating the above-mentioned developments. Do we find specific “gender patterns” within the increasing expansion of self-employment, or will the new chances and risks lead to greater equality of opportunities? Is the increase of solo-self-employment of females driven by the need to earn a living, or is it the result of females taking risks, e.g. to become more economically independent? The structural changes of the labour market raise the question whether self-employment can be seen as a strategy for women to achieve work-life balance and whether these changes in the organisation of work are leading to an improvement of the quality of (working) life. To gather more reliable information, the relationship between self-employment, partner’s employment, the household and children is explored, using Germany as an example. The influence of personal as well as household and labour market characteristics for women and men in a family context and their probability of being self-employed as compared to those who have chosen formal, gainful employment are analysed. The empirical analysis shows that people’s intentions to engage in a specific volume and with specific degrees of motivation reflect diverse areas in the organization of private life. The rationality of private duties, needs, challenges and aspirations belongs to the factors, which influence the decision to engage in the labour market. A crucial impact on those decisions is given by the individual’s domestic background and what the household looks like. Issues of firm partnership, marital status, and the existence of children and age of children or elderly relatives are factors, which provide different life-worlds, which set relevant parameters. In the end, the household as the entity and composition of different interests, motivations, needs, and obstacles proves to be the real acting subject of our analysis.
    Keywords: Self-employment, Gender, Labour Market, Diversity, Household, Entrepreneurship, Inequality, Germany, Logistic Regression.
    JEL: J0 J00 Z13
    Date: 2014–08
  7. By: Bruhn, Miriam; Loeprick, Jan
    Abstract: Using a panel of administrative data and regression discontinuity analysis, this paper examines how the introduction of preferential tax regimes for Georgian micro and small businesses in 2010 affects formal firm creation and tax compliance. The results show that the new tax regime for micro businesses increased the number of newly registered formal firms by 18-30 percent below the eligibility threshold during the first year of the reform, but not in subsequent years. The analysis does not find an effect of the new tax regime for small businesses on formal firm creation in any year. Policy makers are often concerned about abuse risks stemming from differentiated tax treatment of micro and small businesses. The analysis in this paper reveals reduced tax compliance in 2010 around the micro business eligibility threshold, but does not find significant evidence of reduced compliance by Georgian firms in later years. The results also do not show any significant evidence of strategic sorting around the regime eligibility thresholds.
    Keywords: Debt Markets,Taxation&Subsidies,Microfinance,Emerging Markets,Access to Finance
    Date: 2014–08–01
  8. By: Chanyoung Hong; Jung In Yeon; Jeong-Dong Lee
    Abstract: Research and development (R&D) is regarded as a core factor which decides the productivity of a firm in the analysis of modern industrial economics. But the R&D behavior and the consequent effect are observed to be different depending on the firm size and industry belonging. Despite the tendency to show less amount in its expenditure, R&D of small and medium enterprises (SMEs) is important because SMEs occupy major part in the number of firms and employees of a nation. This research analyzes the effect of R&D subsidy for SMEs across industry and national economy. In order to achieve the purpose, macroeconomic model of computable general equilibrium (CGE) is used. The typical form of CGE model is modified into knowledge-based one which has additional accounts and equations to incorporate R&D-related factors. Furthermore, social accounting matrix (SAM) in the model differentiates between SMEs and large firms in each industry. The simulation results are expected to show us that R&D in SMEs causes different effects and implications on various sides such as employment, knowledge stock and GDP growth. For example, subsidy for SMEs may not be relatively effective for GDP growth, but it may cause more increase in employment.
    Keywords: South Korea, General equilibrium modeling, Public finance
    Date: 2014–07–03
  9. By: Forstner, Bernhard; Koester, Ulrich
    Abstract: The president of the European Parliament, Martin Schulz, has repeatedly pointed out that small and medium-sized enterprises (SMEs) in some southern European countries face major constraints to access to credit and that removing these constraints for SMEs could contribute to reducing unemployment. He promised to support special loans programs. According to press reports the European Central Bank is also considering low-cost loans for national banks if they provide credit for SMEs. In this article it is argued theoretically and empirically that the single-business investment support does not address the causes of high unemployment and could result, due to the difficulty in monitoring, in great inefficiencies. Studies that have focused on rural development measures to improve regional economic structures do not show that investment support is an efficient economic policy measure. There are more efficient measures available. An ex-ante evaluation, which is in accordance with EU regulations for the conception of new policies, projects and programs (EU Commission 2006), was conducted to test this recommendation. Any adoption of such policy, should be based on the results of economic analyses and - if available - empirical studies. -- Der Präsident des Europäischen Parlaments, Martin Schulz, hat wiederholt betont, dass kleine und mittelständische Unternehmen nur begrenzten Zugang zu Krediten haben. Eine Förderung dieser Unternehmen sei daher sinnvoll, um die Arbeitslosigkeit zu verringern. Laut Presseberichten erwägt auch die EZB eine verbilligte Kreditvergabe an nationale Banken, wenn diese kleine und mittelständische Unternehmen kreditieren. Im Beitrag wird aus theoretischer Sicht und anhand von Ergebnissen empirischer Untersuchungen argumentiert, dass die einzelbetriebliche Investitionsförderung nicht an den Ursachen der hohen Arbeitslosigkeit ansetzt und aufgrund ihrer schwierigen Steuerbarkeit große Effizienzprobleme aufweist. Untersuchungen der Maßnahmen zur "Förderung der ländlichen Entwicklung", der "Verbesserung der regionalen Wirtschaftsstruktur" sowie der "Ländlichen Entwicklung" belegen nicht, dass Investitionsförderung eine effiziente wirtschaftspolitische Maßnahme ist. Es gibt effizientere Maßnahmen.
    Date: 2014
  10. By: Kayode Bowale; PROF. J.B. LONGE; DR (MRS) M.O.FASORANTI
    Abstract: There is no consensus on the effects of small businesses development on poverty reduction. While some showed positive evidence, others have shown weak relationship.Those that showed negative or weak relationship did not indicate the factors responsible for this.Most of the existing studies have also neglected individual traits of firms and countries.Therefore, the objective of this study is to identify the individual traits of firms and examine their relative contributions to poverty reduction with a view to assessing the role of small businesses development to job creation and income generation in Ondo State, Nigeria-a developing country in Africa.Primary data was used for this study.A questionnaire was used to captured the relevant data from business owners of the selected area. A stratified random sample technique was used in selecting the respondents. Descriptive statistics and econometric statistics were applied in the study.There was sufficient evidence to show that various forms of businesses identified(Micro enterprises,small businesses and medium enterprises) have played role in reducing poverty through employment creation and income generation
    Keywords: Nigeria, Socio-economic development, Socio-economic development
    Date: 2013–09–05
  11. By: Ayyagari, Meghana; Demirguc-Kunt, Asli; Maksimovic, Vojislav
    Abstract: The differences in financial development across Indian states, while seeming substantial, have a minor effect on firm lifecycle and growth. These results hold controlling for differences in labor regulations across states, capital intensity, and for firms born before and after the major reforms. There is no evidence that firms in financially dependent industries have different lifecycle profiles or grow faster in financially developed states than underdeveloped states. Overall, firms in the formal manufacturing sector grow as they age whereas in the informal sector, firms have a declining lifecycle, but in both cases little evidence is found that financial institutions matter for firm lifecycle. The findings of this paper suggest that size and depth differences in financial development across Indian states are likely dwarfed by overall inefficiencies that characterize state-dominated financial systems, with important implications for the reforms of the Indian financial system going forward.
    Keywords: Microfinance,Banks&Banking Reform,Labor Markets,Access to Finance,Labor Policies
    Date: 2014–08–01

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