nep-ent New Economics Papers
on Entrepreneurship
Issue of 2015‒08‒01
five papers chosen by
Marcus Dejardin
Université de Namur

  1. The Dynamics of Development: Entrepreneurship, Innovation, and Reallocation By Roberto Fattal Jaef; Francisco Buera
  2. Venture capital and innovation strategies By Da Rin, M.; Penas, M.F.
  3. Social Enterprises and Employment: Mainstreaming SMEs and Employment Creation By Lanzona, Leonardo Jr. A.
  4. Creating Youth Employment through Entrepreneurship Financing: The Uganda Youth Venture Capital Fund By Gemma, Ahaibwe; Ibrahim, Kasirye
  5. Friend or Foe? Crowdfunding Versus Credit when Banks are Stressed By D. Blaseg; Michael Koetter

  1. By: Roberto Fattal Jaef (The World Bank); Francisco Buera (Federal Reserve Bank of Chicago)
    Abstract: Development dynamics are characterized by sustained improvements in TFP, protracted increases in investment rates, and a broad transformation in the struc- ture of production. Low income countries are characterized by small average firm size, slow firm growth over the life-cycle, and significant dispersion of marginal products. In this paper we present a quantitative theory that jointly matches the behavior of firms in under-developed economies and key properties of develop- ment paths. We work with a model that features endogenous innovation decisions by entrepreneurs, reallocation of factors due to idiosyncratic productivity shocks, and selection in and out of entrepreneurship. We construct a low-TFP stationary equilibrium with dispersion in marginal products that is driven by idiosyncratic distortions. We then trigger development through a reform that liberalizes the economy from all frictions. Our quantitative theory can account well for cross- sectional and life-cycle patterns in distorted economies, and can generate develop- ment paths with rising TFP and investment dynamics, consistent with the data. Ignoring either endogenous innovation or selection in and out of entrepreneurship would lead to counter-factual transition paths, similar to those of the standard neoclassical growth model.
    Date: 2015
  2. By: Da Rin, M. (Tilburg University, TILEC); Penas, M.F. (Tilburg University, TILEC)
    Abstract: Venture capital is a specialized form of financial intermediation that often provides funding for costly technological innovation. Venture capital firms need to exit portfolio companies within about five years from the investment to generate returns for institutional investors. This paper is the first to examine the association of venture capital funding with a company’s choice of innovation strategies. We employ a unique dataset of over 10,000 innovative Dutch companies, some of which received venture financing. The data include detailed information on patent applications, innovation activities, financing sources, and other company characteristics. We find that companies backed by venture capital focus on the buildup of absorptive capacity, by engaging in in-house R&D, while at the same time acquiring external knowledge. We interpret this finding as a consequence of the time horizon of venture capital firms. Our results suggest that the correlation between venture capital funding and the build-up of absorptive capacity is not only due to a selection effect. We derive implications of these findings for corporate strategy and public policy.
    Keywords: Venture Capital; Entrepreneurship; Innovation Strategy; Research & Development; Public Policy
    Date: 2015
  3. By: Lanzona, Leonardo Jr. A.
    Abstract: This paper argues that mainstreaming small and medium enterprises (SMEs) and social enterprises (SEs) into various international treaties will require the assumption of positive externalities, which markets cannot fully evaluate. To show this, the possible influence that SEs may have on SME development and, eventually, on employment will be discussed. SEs are small- and medium-sized commercial businesses providing valuable social service to customers and sustainable jobs and training for up to about 200 people. Their goal is to provide public goods to the communities, in the form of increased productivity and employment. What separates SEs from SMEs is that it addresses the social issues at the forefront. Through this paper, the importance of providing such public goods to SME development will be highlighted. This study shall provide inputs to the analytical framework for the Philippines' engagement in APEC under the priority theme of "Mainstreaming Small and Medium Enterprises and Employment Creation" and shall make concrete recommendations on how employment can be created through the formation of social enterprises or socially-inclusive companies.
    Keywords: poverty, Asia-Pacific Economic Cooperation (APEC), social enterprises (SEs), small and medium-scale enterprises
    Date: 2015
  4. By: Gemma, Ahaibwe; Ibrahim, Kasirye
    Abstract: Youth unemployment continues to be a developmental challenge not only in Uganda but in several sub Saharan countries. At least 64 percent of the total unemployed persons are youth aged 18-30 years. As the government struggles to look for solutions to the unemployment challenge, one approach has been the promotion of self-employment through the establishment of National Youth Funds. Specifically, the Youth Venture Capital Fund (UYVCF) worth UGX 25bn (about US$ 10 million) was introduced in 2011 and more recently, in September 2013, government significantly boosted youth schemes by allocating UGX 265 billion (about US$ 100 million) to the Youth Livelihood Programme (YLP) over a five-year period. The major pillars of these initiatives are: enterprise development, job creation and business skills training and development. Using the UYVCF as a case study, this study examines the level and determinants of youth participation in the fund and evaluates the operations of the fund against the initial guidelines and design as stipulated in the Aide memoire1 between the Ministry of Finance Planning and Economic Development (MFPED) and the participating banks. The study majorly relied on secondary data provided by Centenary Bank, the largest commercial bank participating in the fund and was complemented by a survey of beneficiaries as well as potential beneficiaries. The data sourced from the commercial bank provides an overview of the fund beneficiaries by basic socio economic characteristics while the field survey data was used to compare the activities of beneficiaries vis a vis non-beneficiaries. Results indicate that participation in the youth fund program is positively and significantly influenced by the age cohort of the youth entrepreneur (the older youth aged 26-35 years are more likely to access the fund compared to the younger youth (18-25 years), location of the business (urban based businesses have a higher chance of accessing the fund), type of business enterprise (those in services are more likely to access the fund loan) and business maturity. Although there has been some positive effect of the fund on business expansion, we do not find significant evidence of the youth fund effect on jobs creation. It was also discovered that the major role players are not entirely fulfilling their mandates and some have sidetracked from the initial objectives. On the policy front, we propose that for the youth fund to have a lasting impact on its intended objectives, the promotion of youth entrepreneurship should be approached comprehensively (not only the credit component) and it should target productive sectors with high employment creation potential. A strong institutional framework and elimination of obstacles to self-employment are other recommendations arising out of the study.
    Keywords: Youth, Youth Fund, Employment Creation, and Entrepreneurship, Community/Rural/Urban Development, Consumer/Household Economics, Industrial Organization, Institutional and Behavioral Economics, International Relations/Trade, Political Economy, Public Economics, Resource /Energy Economics and Policy,
    Date: 2015–05
  5. By: D. Blaseg; Michael Koetter
    Abstract: Does bank instability push borrowers to use crowdfunding as a source of external finance? We identify stressed banks and link them to a unique, manually constructed sample of 157 new ventures seeking equity crowdfunding. The sample comprises projects from all German equity crowdfunding platforms since 2011, which we compare with 200 ventures that do not use crowdfunding. Crowdfunding is significantly more likely for new ventures that interact with stressed banks. Innovative funding is thus particularly relevant when conventional financiers are facing crises. But crowdfunded ventures are generally also more opaque and risky than new ventures that do not use crowdfunding.
    Keywords: equity crowdfunding, credit crunch, bank stress
    JEL: G01 G21 G30
    Date: 2015–07

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