nep-ent New Economics Papers
on Entrepreneurship
Issue of 2015‒02‒05
twelve papers chosen by
Marcus Dejardin
Université de Namur

  1. The growth potential of startups over the business cycle By Petr Sedlacek; Vincent Sterk
  2. Can Unemployment Insurance Spur Entrepreneurial Activity? By Hombert, Johan; Schoar, Antoinette S; Sraer, David; Thesmar, David
  3. Culturally clustered or in the cloud? location of internet start-ups in Berlin By Kristoffer Moeller
  4. Can basic entrepreneurship transform the economic lives of the poor? By Oriana Bandiera; Narayan Das; Robin Burgess; Selim Gulesci; Munshi Sulaiman; Imran Rasul
  5. The dynamics of employment growth: new evidence from 18 countries By Chiara Criscuolo; Peter N. Gal; Carlo Menon
  6. Uncertainty and the Employment Dynamics of Small and Large Businesses By Vivek Ghosal; Yang Ye
  7. Relationships at work in a networked business incubator: the case of H-Farm By Silvia Sedita; Roberto Grandinetti
  8. Funding issues confronting high growth SMEs in the UK By Ross Brown; Neil Lee
  9. Innovation and SMEs Patent Propensity in Korea By Han, Junghee; Heshmati, Almas
  10. Identifying Binding Constraints to Growth: Does Firm Size Matter? By Mauricio Vargas
  11. Globalization and Domestic Operations: Applying the JC/JD method to Japanese manufacturing firms By ANDO Mitsuyo; KIMURA Fukunari
  12. Innovation and Trade in the Presence of Credit Constraints By Foellmi, Reto; Legge, Stefan; Tiemann, Alexa

  1. By: Petr Sedlacek; Vincent Sterk
    Abstract: This paper shows that job creation of cohorts of U.S. firms is strongly influenced by aggregate conditions at the time of their entry. Using data from the Business Dynamics Statistics (BDS) we follow cohorts of young firms and document that their employment levels are very persistent and largely driven by the intensive margin (average firm size) rather than the extensive margin (number of firms). To differentiate changes in the composition of startup cohorts from post-entry choices and to evaluate aggregate effects, we estimate a general equilibrium firm dynamics model using BDS data. We find that even for older firms, the aggregate state at birth drives the vast majority of variations in employment across cohorts of the same age. The key force behind this result are fluctuations in the composition of startup cohorts with respect to firms' potential to grow large. At the aggregate level, factors determined at the startup phase account for the large low-frequency fluctuations observed in the employment rate.
    Keywords: firm dynamics; heterogeneous agents; maximum likelihood; DSGE
    JEL: E32 L11 M13
    Date: 2014–01–06
  2. By: Hombert, Johan; Schoar, Antoinette S; Sraer, David; Thesmar, David
    Abstract: We study a large-scale French reform that provided generous downside insurance for unemployed individuals starting a business. We study whether this reform affects the composition of people who are drawn into entrepreneurship. New firms started in response to the reform are, on average, smaller, but have similar growth expectations and education levels compared to start-ups before the reform. They are also as likely to survive or to hire. In aggregate, the effect of the reform on employment is largely offset by large crowd-out effects. However, because new firms are more productive, the reform has the impact of raising aggregate productivity. These results suggest that the dispersion of entrepreneurial abilities is small in the data, so that the facilitation of entry leads to sizable Schumpeterian dynamics at the firm-level.
    Keywords: Crowding out; Entrepreneurship; Unemployment
    JEL: L26
    Date: 2014–12
  3. By: Kristoffer Moeller
    Abstract: Knowledge based firms like IT companies do neither have a capital- nor a land intensive production. They predominantly rely on qualified labour and increasingly depend on the location of its (potential) employees. This implies that it is more likely that firms follow workers rather than the other way around. Contributing to the literature of firm location and consumer cities I empirically test the amenity oriented firm location hypothesis. In particular I investigate whether Berlin internet start-up firms, representing a footloose knowledge-based service industry, locate in urban amenity-rich places. Identification builds on the sudden fall of the Berlin Wall. The intra-city analysis yields a significant impact of urban amenities on the location of internet start-up. A comparison with other service industries suggests that amenities are significant to the location choice of creative sectors whereas no effect can be observed for non-creative firms.
    Keywords: firm location; urban amenities; consumer city; internet start-ups; entrepreneurs; Berlin
    JEL: D20 L20 R30
    Date: 2014–03
  4. By: Oriana Bandiera; Narayan Das; Robin Burgess; Selim Gulesci; Munshi Sulaiman; Imran Rasul
    Abstract: The world’s poorest people lack capital and skills and toil for others in occupations that others shun. Using a large-scale and long-term randomized control trial in Bangladesh this paper demonstrates that sizable transfers of assets and skills enable the poorest women to shift out of agricultural labor and into running small businesses. This shift, which persists and strengthens after assistance is withdrawn, leads to a 38% increase in earnings. Inculcating basic entrepreneurship, where severely disadvantaged women take on occupations which were the preserve of non-poor women, is shown to be a powerful means of transforming the economic lives of the poor.
    Keywords: asset transfers; capital constraints; vocational training; occupational choice; structural change; poverty
    JEL: J1
    Date: 2013–04
  5. By: Chiara Criscuolo; Peter N. Gal; Carlo Menon
    Abstract: Motivated by the on-going interest of policy makers in the sources of job creation, this paper presents results from a new OECD project on the dynamics of employment (DynEmp) based on an innovative methodology using firm-level data (i.e. national business registers or similar sources). It demonstrates that among small and medium sized enterprises (SMEs), young firms play a central role in creating jobs, whereas old SMEs tend to destroy jobs. This pattern holds robustly across 17 OECD countries and Brazil, extending recent evidence found in the United States. The paper also shows that young firms are always net job creators throughout the business cycle, even during the financial crisis. During the crisis, entry and post-entry growth by young firms were affected most heavily, although downsizing by old firms was responsible for most job losses. The results also highlight large cross-country differences in the growth potential of young firms, pointing to the role played by national policies in enabling successful firms to create jobs.
    Keywords: Business dynamics; employment growth; small businesses; business demography; startups; great recession; job creation and destruction
    JEL: D20 E24 L25 L29
    Date: 2014–06
  6. By: Vivek Ghosal; Yang Ye
    Abstract: We examine the impact of uncertainty on employment dynamics. Alternative measures of uncertainty are constructed based on the survey of professional forecasters, and regressionbased forecasting models for GDP growth, inflation, S&P500 stock price index, and fuel prices. Our results indicate that greater uncertainty has a negative impact on growth of employment, and the effects are primarily felt by the relatively smaller businesses; the impact on large businesses are generally non-existent or weaker. Our results suggest that to truly understand the effects of uncertainty on employment dynamics, we need to focus on the relatively smaller and entrepreneurial businesses. We discuss implications for the framing of economic policy.
    Keywords: Employment;Business enterprises;Entrepreneurship;Forecasting models;Regression analysis;uncertainty, employment, small businesses, entrepreneurship, real-options, financing constraints.
    Date: 2015–01–14
  7. By: Silvia Sedita (University of Padova); Roberto Grandinetti (University of Padova)
    Abstract: This work adds to the previous literature on networked business incubators (NBIs) by exploring the complex network of relationships originated from a NBI. In particular, social ties (cooperative relations between individuals) and business ties (formal linkages between organizations) are investigated. The analytical framework developed here is empirically illustrated through a case study research on a leading Italian private NBI called H-Farm. Primary data collection was conducted during the period MayÐSeptember 2012 by means of face-to-face in-depth interviews and a survey. Data are elaborated through social network analysis tools. The results highlight the co-presence and interaction of social and business ties, which build up a vital environment nurturing an entrepreneurial ecosystem. Community-based relationships and an influential incubator management are crucial for sustaining incubatees in product and business development activities.
    Keywords: networked business incubator, entrepreneurship, social network analysis, interpersonal networks, inter-organizational networks, start-ups, liability of newness.
    JEL: L26 M13
    Date: 2014–12
  8. By: Ross Brown; Neil Lee
    Abstract: How do we ensure that companies with the potential to grow do so? Does a lack of finance prevent firms from growing and benefiting the wider economy? These are important questions if we are looking for economic growth. There has been much focus and debate on the funding issues affecting small and medium sized entities (SMEs), but this report takes that debate a stage further by investigating ‘high growth SMEs’. One of the 14 published policies of the Department of Business, Innovation and Skills (BIS) in the UK is ‘Making it easier to set up and grow a business’. This report aims to provide evidence for the debate on how this policy can be achieved and covers both supply and demand issues for high growth SMEs. It does so by a review of the existing literature, an analysis of the Small Business Survey, undertaken by BIS, and a series of in-depth interviews with a small number of high growth SMEs. The study finds that although high growth SMEs are 9% more likely to apply for finance than other SMEs, they are no more or less likely to be successful. Importantly, these firms are identified as highly ‘reluctant borrowers’ rather than ‘discouraged borrowers’ – that is they are just unwilling to borrow, even to fund growth. This reluctance stems from a lack of trust of banks and a resistance to any dilution in their own autonomy. A number of policy implications are drawn from this research by the authors, with recommendations for both the supply and the often neglected demand-side of funding. Most importantly, though, there is a need to consider how ‘reluctant borrowers’ may be transformed into ‘willing borrowers’ and how demand for finance may be stimulated in the future.
    JEL: N0
    Date: 2014
  9. By: Han, Junghee (Chonnam National University); Heshmati, Almas (Jönköping University, Sogang University)
    Abstract: This paper analyzes the patent propensity as an outcome of innovative activities of regional SMEs. To achieve the aims, we apply robust regression analysis to estimate the models to test 5 research hypotheses using 263 firm level data located at Gwangju region in Korea. Our empirical results show that a firm's industry characteristics, such as machinery and automotive parts industry, is negatively related with propensity to patent innovation. Also, unlike expectations, the InnoBiz firms designated as innovative SMEs by the government are not performing differently than general firms. Only the CEO's academic credentials are positively related with propensity to patent. From the findings, we can conclude that patenting propensity is not directly related with a firm's characteristics but mainly to CEO's managerial strategy. Also, we cannot find evidence for policy effectiveness from public support given to InnoBiz firms as part of the state policy to nurture photonic industry to boost regional economic development. Given the lack of strong policy effects, a new industry policy should be considered to actively promote SMEs innovativeness.
    Keywords: patent propensity, photonic industry, SMEs growth, R&D, innovation, InnoBiz, Korea
    JEL: C51 D22 O31 O32
    Date: 2015–01
  10. By: Mauricio Vargas
    Abstract: As emphasized by Hausmann, Rodrik and Velasco, the policy challenge of boosting growth requires prioritization and identifying what are the most binding constraints. This paper draws on firm-level data from the World Bank Enterprise Survey, which suggests that the obstacles for the functioning of firms is related to firm size. Recognizing the potential endogeneity and simultaneity between firms' constraints and firm size, we implement an Ordered-Probit model with a potential categorical endogenous regressor to estimate, for the case of Bolivia, the conditional probability of facing obstacles given the firm size category, while controlling for other factors. The results confirm the importance of allowing for the roles of firm size in identifying constraints and suggest priorities for policies to remove constraints to economic performance.
    Keywords: Economic growth;Business enterprises;Bolivia;Econometric models;Firm Size, Firms’ Constraints, IV-Oprobit, Bolivia
    Date: 2015–01–14
  11. By: ANDO Mitsuyo; KIMURA Fukunari
    Abstract: This paper applies the job creation (JC)/ destruction (JD) method to the micro data of Japanese manufacturing firms and provides a bird's eye portrait of the dynamism of globalizing firms in terms of domestic employment, domestic establishments, domestic affiliates, and trade. It examines gross and net changes in domestic operations and trade by multinational enterprises that expand operations abroad (expanding MNEs), compared with non-expanding MNEs and local firms, in the periods of 1998-2002, 2002-2006, 2006-2008, and 2008-2010. It also conducts the Kolmogorov-Smirnov test to investigate whether the changes in domestic operations and trade by expanding MNEs are larger than those by other firm types. Major findings are the following: (i) gross changes in domestic employment/operations are much larger than net changes, showing restructuring dynamism and firm heterogeneity, (ii) de-industrialization or the shrinkage of the manufacturing sector is not salient except for 1998-2002 although a slight declining trend in manufacturing activities has been observed recently, (iii) expanding multinational small and medium enterprises (SMEs) tend to enlarge domestic employment/operations, compared with other types of SMEs, (iv) expanding MNEs intensify headquarters activities, probably within international production networks, and (v) expanding multinational SMEs are likely to expand exports and imports more than other types of SMEs, suggesting active operations in international production networks particularly in East Asia.
    Date: 2015–01
  12. By: Foellmi, Reto; Legge, Stefan; Tiemann, Alexa
    Abstract: This paper examines how trade liberalization affects investments in R&D at the firm level. We provide a model with entrepreneurs differing in their wealth endowment, causing them to rely differently on external funds. In the presence of capital market imperfections, this implies heterogeneous access to external funds such that poor entrepreneurs run smaller firms, are less likely to invest in R&D, and more likely to exit the market. Decreasing trade costs resulting from tariff reductions exacerbate these characteristics. Using firm-level panel data on seven Latin American countries for 2006 and 2010, we find support for our theoretical predictions. While recent studies emphasize a positive impact of trade liberalization on firms' productivity-enhancing activities, we provide novel evidence showing that financial constraints can impair the effect on R&D efforts. These results suggest that imperfect capital markets can prevent welfare gains from trade liberalization to materialize.
    Keywords: Financial constraints, innovation, trade liberalization
    JEL: F14 O12 O16
    Date: 2015–01

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