nep-ent New Economics Papers
on Entrepreneurship
Issue of 2017‒01‒08
eighteen papers chosen by
Marcus Dejardin
Université de Namur

  1. Self-employment effects on regional growth: A bigger bang for a buck? By Tsvetkova, Alexandra; Partridge, Mark; Betz, Michael
  2. How Destructive is Innovation? By Daniel Garcia-Macia; Chang-Tai Hsieh; Peter J. Klenow
  3. Firm patenting activity, metropolitan innovative environment and their effects on business survival in a high-tech industry By Tsvetkova, Alexandra; Thill, Jean-Claude; Conroy, Tessa
  4. The Real Effects of Capital Requirements and Monetary Policy: Evidence from the United Kingdom By Filippo De Marco; Tomasz Wieladek
  5. Startup Innovation during the Past Economic Crisis By Nabil Abou Lebdi; Katrin Hussinger
  6. Monopoly Capital and Entrepreneurism: Whither Small Business? By Lambert, Thomas
  7. Large Scope Business Sector Reforms: Has the Swedish Business Sector Become More Entrepreneurial than the U.S. Business Sector? By Andersson, Fredrik; Heyman, Fredrik; Norbäck, Pehr-Johan; Persson, Lars
  8. University spin-off firms in sustainable energy in five countries: What determines their reaching of the market? By Marina Van Geenhuizen; Razie Nejabat
  9. Promotion of Innovation and Job Growth in Small and Medium Sized Enterprises in Australia: Evidence and Policy Issues By Harry Bloch; Mita Bhattacharya
  10. Business networks, social capital and the productivity of creative industries in Indonesia By Fikri Zul Fahmi
  11. Entrepreneurial Intentions in Selected Southeast European Countries By Edo Rajh; Jelena Budak; Jovo Ateljevic; Ljupco Davcev; Tamara Jovanov; Kosovka Ognjenovic
  12. Capability factors in changing patterns of international knowledge relationships among university spin-off firms in Northwest Europe By Marina Van Geenhuizen
  13. Firm Dynamics, Misallocation and Targeted Policies By In Hwan Jo; Tatsuro Senga
  14. Sectorial and regional determinants of firm dynamics in developing countries: evidence for low, medium and high tech manufacturing in Argentina By Calá, Carla Daniela
  15. Entrepreneurial and Wage and Salary Employment Response to Economic Conditions Across the Rural-Urban Continuum By Tsvetkova, Alexandra; Partridge, Mark; Betz, Micael
  16. Impact Assessment of Tax Incentives to Foster Industrial Innovation in Brazil: The Case of Law 11,196/05 By Daniel Gama e Colombo
  17. Characteristics of Finnish startups By Kotiranta, Annu; Pajarinen, Mika; Rouvinen, Petri
  18. Initial aspirations, size, and being a limited-liability company cause growth among startups By Kotiranta, Annu; Pajarinen, Mika; Rouvinen, Petri

  1. By: Tsvetkova, Alexandra; Partridge, Mark; Betz, Michael
    Abstract: Economic development policies often revolve around supporting small businesses and new firm creation as they are locally grown and likely can be more influenced by state and local policy. Two prominent strands of current research—the regional economic growth and small business/entrepreneurship literatures—elucidate the importance of small, young firms for regional economic performance and the crucial role urban-rural proximity plays in the distribution of growth across space. Keeping these two research traditions in mind, we study the effects of self-employment on job growth in US counties. Our goal is to estimate the net employment spillovers from changes in self-employment (SE) and to compare them to spillovers from changes in wage and salary employment (WS). We ask the following research questions: Do exogenous net changes (shocks) in SE spur larger or smaller changes in employment than do equal changes in WS employment and do these effects vary across the rural-urban hierarchy? The answers to these questions are of paramount importance in devising economic development strategy across urban and rural settings. We use a differencing strategy and an exogenous measure of SE and WS employment shocks to estimate net multiplier effects and to investigate their relationship with proximity to differing-sized urban centers. The analysis uses US county-level data spanning the 2001-2013 period. The results suggest that marginal effects from self-employment are consistently larger than from paid employment, particularly in metropolitan counties. Given the dominant share of paid employment, however, the magnitude of economic impact is greater from wage and salary employment. Distance from urban centers generally offers protection that promotes SE growth but hinders WS employment growth. In an austere fiscal environment, spending a dollar to stimulate SE is likely to have greater returns as opposed to stimulating WS employment if the costs of creating one SE and one WS job are comparable.
    Keywords: self-employment; wage and salary employment; exogenous demand shocks; employment growth; job creation; regional economic growth
    JEL: O1 O51 R11
    Date: 2016–12–23
  2. By: Daniel Garcia-Macia; Chang-Tai Hsieh; Peter J. Klenow
    Abstract: Entrants and incumbents can create new products and displace the products of competitors. Incumbents can also improve their existing products. How much of aggregate productivity growth occurs through each of these channels? Using data from the U.S. Longitudinal Business Database on all non-farm private businesses from 1976–1986 and 2003–2013, we arrive at three main conclusions: First, most growth appears to come from incumbents. We infer this from the modest employment share of entering firms (defined as those less than 5 years old). Second, most growth seems to occur through improvements of existing varieties rather than creation of brand new varieties. Third, own-product improvements by incumbents appear to be more important than creative destruction. We infer this because the distribution of job creation and destruction has thinner tails than implied by a model with a dominant role for creative destruction.
    JEL: E24 O3 O4 O5
    Date: 2016–12
  3. By: Tsvetkova, Alexandra; Thill, Jean-Claude; Conroy, Tessa
    Abstract: This paper distinguishes between internal (produced within the firm) and external (produced by other firms) knowledge and studies the effects of both knowledge types on survival in a cohort of computer and electronic product manufacturing companies started in 1991 in the continental US metropolitan statistical areas (MSAs). Estimation results suggest that innovative companies face lower hazard but this effect seems to be driven by company’s initial characteristics, as producing more knowledge measured by successful patent applications does not translate into a higher likelihood of survival. In contrast, an innovative environment decreases survival likelihood in the whole sample, yet this result appears to be driven by non-patenting establishments. In the subset of non-patenting firms an innovative environment has a strong negative effect on survival whereas no significant relationship is identified in the subset of innovative firms.
    Keywords: Business survival, knowledge creation, patents, innovative environment
    JEL: L63 O3 O51
    Date: 2016–12–23
  4. By: Filippo De Marco; Tomasz Wieladek
    Abstract: We study the effects of bank-specific capital requirements on Small and Medium Enterprises (SMEs) in the UK from 1998 to 2006. Following a 1% increase in capital requirements, SMEs’ asset growth contracts by 6.9% in the first year of a new bankfirm relationship, but the effect declines over time. We also compare the effects of capital requirements to those of monetary policy. Monetary policy only affects firms with higher credit risk and those borrowing from small banks, whereas capital requirements affect both. Capital requirement changes, instead, do not affect firms with alternative sources of finance, but monetary policy shocks do.
    Keywords: Capital requirements, SME real effects, relationship lending, microprudential and monetary policy
    JEL: G21 G28 E51
    Date: 2016
  5. By: Nabil Abou Lebdi (CREA, Université du Luxembourg); Katrin Hussinger (CREA, Université du Luxembourg)
    Abstract: By the notion of creative destruction, a crisis can stimulate entrepreneurship and innovation through reallocation of unproductive assets to new ventures that exploit emerging opportunities. However, a crisis can also hamper innovation by exacerbated credit market imperfections that affect new innovative ventures disproportionately. This study investigates the innovation behavior of German startups founded during the past economic crisis in 2009. Empirical results show that crisis startup foundations in high-tech sectors are less likely to introduce innovations to the market than ventures started in the pre-crisis period. Yet, the degree of novelty of these product or service innovations is significantly higher as compared to products and services introduced by start-ups founded in pre-crisis years. Moreover, we do not find evidence for necessity entrepreneurship in German low-tech industries.
    Keywords: creative destruction, economic crisis, entrepreneurship, innovation, startups
    JEL: L26 M13 O31
    Date: 2016
  6. By: Lambert, Thomas
    Abstract: There has been a growing literature over the last several years on a possible decline in US entrepreneurship and the reasons for it. US small business formation and the jobs created by small businesses are supposed to be key elements in US economic growth. Many claim that without growth in small businesses and the jobs they provide that the US economy will either not grow at all or only very slowly. Therefore, small business formation is a possible key to understanding capitalism in the 21st century since under monopoly capital there is claimed to be a tendency toward economic stagnation. Some of the general causes mentioned for less US entrepreneurism include high levels of personal debt (mortgages, student loans, credit cards, etc.) among the US populace and the increasing challenges that small businesses face against larger ones. Another concern is the amount of increasing business regulation and government presence in the US economy with which small businesses struggle more than larger ones. If entrepreneurism requires risk taking, then high levels of household debt and large, well-financed potential competitors may be hindering prospective entrepreneurs. This exploratory paper finds that high levels of household debt, the increasing size of existing businesses, and government size are highly correlated with the slowdown in the entry rates of new firms into the US economy since the late 1970s as well as with a slowdown in the job creation rate of these firms.
    Keywords: big business, corporations, entrepreneurism, household debt, monopoly capital, small business
    JEL: B51 L26
    Date: 2017–01–04
  7. By: Andersson, Fredrik (Research Institute of Industrial Economics (IFN)); Heyman, Fredrik (Research Institute of Industrial Economics (IFN)); Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: Recent studies document a 30-year decline in various measures of entrepreneurship in the United States. In contrast, using detailed Swedish employer-employee data over the period 1990–2013, we find no decline in Swedish entrepreneurial activity. Aggregate net job creation is greatest among the youngest firms in the Swedish business sector. Moreover, most of the net job creation by young firms takes place in the expanding service sector. We argue that a key explanation for the high entrepreneurial activity in the Swedish business sector during the last two decades stems from economic reforms in the 1990s that mitigated several hurdles to entrepreneurship.
    Keywords: Entrepreneurship; Job dynamics; Matched employer-employee data; Industrial structure and structural change
    JEL: J23 K23 L26 L51
    Date: 2016–12–21
  8. By: Marina Van Geenhuizen; Razie Nejabat
    Abstract: An entrepreneurial perspective to introduction of sustainable energy solutions to the market has been recognized as important for decades, but mainly concerning large firms. Today, attention is increasingly turning to young high-technology ventures which, compared to large incumbents, are more flexible, creative, responsive and willing to take risks enabling them to work as a trigger or accelerator of profound changes. At the same time, these young firms suffer from a lack of resources, specifically investment capital, the last mainly caused by a slow development due to resistance from society, among others, existing energy infrastructures (?valley of death?). In this context, an often advised strategy is to partner with a larger company. This paper explores the time dimension in market introduction of sustainable energy solutions while taking an in-depth approach to collaboration and investment capital amidst a set of other firm-specific and external factors. First, we compare the five countries, Netherlands, Norway, Sweden, Denmark and Finland, with regard to favorable circumstances to adoption of sustainable energy solutions, particularly continuity in supporting policies. Next, we build a carefully selected sample of 37 university spin-off firms representing different ?theoretical positions? regarding country, but also established collaboration networks, amount of investment capital granted, and type of energy system - solar, wind, biomass, etc. - and we apply rough-set analysis as a ?qualitative? causal analysis. In addition, we deploy five in-depth case studies for deepening understanding. We found that out of nine firm-specific and firm-external factors, three factors have a strong influence on speed of market introduction. These are first of all country, but also type of energy technology (system) and richness in collaboration networks. Country was found to have a positive influence on reaching the market at a higher level of innovation (Nordic ?innovation leader? countries) and, conversely, a negative influence at lower levels of innovation (Netherlands and Norway). Furthermore, rich network collaboration turned out to work positively in an already positive situation (?innovation leader? country). Lacking such collaboration contributed to problematic developments, specifically in combination with solar technology. Evidence on influence of lack of capital investment turned out to be rather weak. Further, the case study analysis yielded the additional insight that speed in market introduction may also work negatively, namely, if large amounts of investment capital put pressure on the firm and market introduction occurs actually too early. The paper concludes with issues on ?theoretical? generalization, extending the sample to a larger random sample, and additional research questions.
    Keywords: Sustainable energy (system); young ventures; market introduction; national innovation system; collaboration; investment capital
    JEL: D22 Q42 Q48 M13
    Date: 2016–12
  9. By: Harry Bloch; Mita Bhattacharya
    Abstract: Small and medium sized enterprises (SMEs) play a substantial role in Australian growth and job creation. We discuss approaches to understanding the drivers of innovation and then review evidence on the determinants of innovation by Australian SMEs. We also examine the role of these firms in job creation. Against this evidence and the conceptual underpinnings, we then discuss some issues that arise with the government’s current innovation agenda.
    Keywords: Australia; Research and development; SMEs; innovation; innovation policy
    Date: 2016–11
  10. By: Fikri Zul Fahmi
    Abstract: This study examines the role of social and professional networks in the productivity of creative firms in Indonesia. In so doing, mixed methods are employed, including multilevel modelling as well as qualitative analysis, which is also performed to elaborate further on the process in which networking affects productivity. The Indonesian government promotes traditional businesses as creative industries, but they actually have different characteristics and networks. Therefore, in this paper creative and traditional cultural industries are differentiated. The results of multilevel analysis show that social capital is associated differently with the productivity of both types of industries. Creative industries appear to benefit from friendship, which facilitates their networking and creative processes. Meanwhile, friendship is negatively associated with the productivity of traditional cultural industries. This conclusion is affirmed by the qualitative analysis, which demonstrates that the relationship between friendship and productivity is rather complex. On the one hand, friendship helps firms find and develop their networked consumers. On the other hand, such strong ties between firm owners often lead to social events and gathering and thus, eliminate competition. Further to this, enhancing the productivity of these industries is better done not by forming associations which may only strengthen their bonding ties. Rather, providing common spaces that can facilitate cross-fertilization of ideas in a serendipitous and inclusive climate would be more effective.
    Keywords: creative industries; business networks; social capital; Indonesia
    JEL: D22 R11 L25 L26
    Date: 2016–12
  11. By: Edo Rajh (The Institute of Economics, Zagreb, Croatia); Jelena Budak (The Institute of Economics, Zagreb, Croatia); Jovo Ateljevic (Faculty of Economics, University of Banja Luka); Ljupco Davcev (Faculty of Economics, Goce Delcev University in Shtip); Tamara Jovanov (Faculty of Economics, Goce Delcev University in Shtip); Kosovka Ognjenovic (Institute of Economic Sciences, Belgrade)
    Abstract: Entrepreneurship has an increasingly important role in economic growth and development in both developed and underdeveloped countries. In order to explore entrepreneurial intentions and their antecedents in the post-transition context, we have conducted a survey among 1,200 students of economics and business in four Southeast European countries: Bosnia and Herzegovina, Croatia, Macedonia and Serbia. The following scales were included in the highly structured questionnaire: locus of control, risk taking propensity, perceived barriers, perceived support factors, personal attitude towards entrepreneurship, perceived behavioral control, subjective norm and entrepreneurial intention. Collected data were analyzed with multiple regression technique in order to explore the effects of various antecedents on entrepreneurial intention in the context of Southeast European countries. The results indicate that personal attitude towards entrepreneurship, perceived behavioral control and subjective norm positively and significantly affect entrepreneurial intent. Respondents from Bosnia and Herzegovina exhibit higher levels of entrepreneurial intent compared to other observed countries. The findings of our research provide better understanding of entrepreneurial intentions and their antecedents in the specific post-transition context of Southeast European countries. Theoretical and policy implications of the research findings are discussed in the paper.
    Keywords: entrepreneurship, entrepreneurial intentions, survey, post-transition, Southeast Europe
    JEL: L26
    Date: 2016–11
  12. By: Marina Van Geenhuizen
    Abstract: Industrial competence is increasingly dispersed across the globe, urging technology-based firms in Europe to establish international knowledge relationships at larger distances. This paper examines changing patterns of international knowledge relationships and the influence of capability factors of university spin-off firms on building such relationships, using a sample of 105 of such firms. The paper addresses the debate on capabilities among young high-tech ventures in developing an adequate internationalization network, in which opinions are contrasting, like concerning an easy globalization (born-global model) versus a reluctant and step-wise approach. In early patterns, 62 per cent of the sampled firms employed knowledge relationships abroad. The main capability factors affecting these early relationships tend to be PhD education in the founding team, participation in training, and the capability to innovate on a practical and modestly innovative level responding to market demand. The subsequent changes in relationships have led to a high overall internationalization level of 82 per cent five years later, but also reveal diverse trends on the individual level of firms, namely, no change for half of the spin-offs but an increase of spatial reach for only one third. With the aim to explore spatial internationalization patterns and changes herein, we apply logistic regression analysis. Important factors affecting both early and later international networks tend to be entrepreneurial orientation, regarding industry sector and market, while later relationships tend to be path-dependent, i.e. mainly influenced by the previous pattern.
    Keywords: University spin-off firms; Knowledge relationships; Spatial reach; Capability factors
    JEL: D8 L21 L26 M13
    Date: 2016–12
  13. By: In Hwan Jo (National University of Singapore); Tatsuro Senga (Queen Mary University of London)
    Abstract: Access to external finance is a major obstacle for small and young firms; thus, providing subsidized credit to small and young firms is a widely-used policy option across countries. We study the impact of such targeted policies on aggregate output and productivity and highlight indirect general equilibrium effects. To do so, we build a model of heterogeneous firms with endogenous entry and exit, wherein each firm may be subject to forward-looking collateral constraints for their external borrowing. Subsidized credit alleviates credit constraints small and young firms face, which helps them to achieve the efficient and larger scale of production. This direct effect is, however, either reinforced or offset by indirect general equilibrium effects. Factor prices increase as subsidized firm demand more capital and labor. As a result, higher production costs induce more unproductive incumbents to exit, while replacing them selectively with productive entrants. This cleansing effect reinforces the direct effect by enhancing the aggregate productivity. However, the number of firms in operation decreases in equilibrium, and this, in turn, depresses the aggregate productivity.
    Keywords: Firm dynamics, Misallocation, Financial frictions, Firm size and age
    JEL: E22 G32 O16
    Date: 2016–12
  14. By: Calá, Carla Daniela
    Abstract: We analyse the determinants of firm dynamics in developing countries using Argentina as an illustrative case. We explain firm entry and exit at the regional level, distinguishing three groups of manufacturing activities: low, medium and high tech. We find that both region -and sector- specific determinants explain firm dynamics, but the impact is not homogeneous across sectors. In particular, for low tech industries, there is a need for explanatory variables that proxy for the specificities of developing economies (poverty, informal economy and idle capacity). We also find evidence of a core-periphery pattern according to which agglomeration economies and previous entries/exits have different effects in core and peripheral regions. These results are relevant for policy makers in developing countries, who should take into account not only the specificities of such economies, but also the regional heterogeneity both in terms of the level of development and industrial composition within the country.
    Keywords: Dinámica Empresarial; Creación de Empresas; Cese de Actividad; Relación Centro-Periferia; Modelo de Panel; Argentina;
    Date: 2018
  15. By: Tsvetkova, Alexandra; Partridge, Mark; Betz, Micael
    Abstract: In this paper, we explore how national economic trends in a set of industries that compose local economies and growth in nearby metropolitan areas affect local employment growth in different tiers of the urban-rural hierarchy, paying close attention to the effects of urban proximity. The results of our county-level analyses reveal heterogeneous responses. Favorable economic changes due to a fast-growing local industry composition have the largest positive impact on self-employment growth in small metropolitan areas and the smallest positive impact in rural counties. Self-employment in rural counties is fostered by growth in nearby small MSAs and is hampered by growth in nearby large MSAs. In micropolitan counties, there are no significant negative effects, whereas positive (or spread) effects are detected originating only from small and medium MSAs but not from large MSAs. In urban counties, growth in a nearby large MSA is not related to local self-employment growth in the lower tiers of the urban hierarchy.
    Keywords: Urban-rural hierarchy, self-employment, wage and salary employment, urban-rural interdependence
    JEL: O1 O51 R11 R12
    Date: 2016–12–01
  16. By: Daniel Gama e Colombo
    Abstract: This paper evaluates the effects of tax incentives for technological innovation in Brazil established by the Law 11,196/05 ("Lei do Bem"), to test whether they have increased resources for business innovation projects and had any significant impact on their results. The average treatment effect on the treated (ATT) is estimated using microdata on the firm level from the Brazilian Industrial Innovation Survey (PINTEC) conducted by IBGE, and applying a propensity score matching (PSM) technique, used in recent similar analyzes. Results suggest the policy positively affects R&D expenditures, number of research staff and the base of firms investing in innovation. Average impact on spending, nevertheless, falls short of the volume of tax break per firm. Moreover, benefited firms have more chances to innovate and experience higher growth in terms of overall number of employees. Such results are in accordance with findings of most of the empirical literature on innovation tax incentives. The study provides empirical support in favor of tax incentives as part of a government strategy to boost entrepreneurial innovation in the country.
    Keywords: Tax incentives; technological innovation; impact assessment; “Lei do Bem”.
    JEL: O38 O54 H25
    Date: 2016–12–01
  17. By: Kotiranta, Annu; Pajarinen, Mika; Rouvinen, Petri
    Abstract: In this study, we analyze the characteristics and development of Finnish startups based on firm-level data available in public databases. By startups we refer to young, small, and independent firms holding basic elements for growth. Some 4 000–5 000 of such firms are being established annually, of which 6–7% grow to employ at least 10 workers in three years and have had simultaneously increased their employment by at least 20% per annum. About one third of all startups operate in knowledge intensive services and altogether around 70% in services; only few dozen of new startups are in high-tech manufacturing industries. Approximately 70% of startups survive for at least five years. During this period, their employment has on average doubled. The most intensive growth spurt emerges usually in the very first years after establishing the business. Only a few percent of startups get venture capital investments or public innovation subsidies.
    Keywords: Entrepreneurship, growth firm, start-up, enterprise policy
    JEL: D92 L26 L53 M13
    Date: 2016–12–22
  18. By: Kotiranta, Annu; Pajarinen, Mika; Rouvinen, Petri
    Abstract: In this report, we study the development of Finnish startup firms based on both survey and register data. The sample includes all firms that were founded in the first half of the year 2005, and those firms have been monitored for eight years. We find that entrepreneurs in growth-oriented startups have had typically already some experience from being an entrepreneur or managing business, and have had success in risk-taking activities. Growth-oriented startup firms are in turn more likely to be networked with other firms and institutions, and are already in the startup phase larger than others. Growth-orientation correlates significantly with ex-post growth, but does not boost failure rates. Besides growth-orientation, the larger size of the firm in the startup phase and the limited liability company form correlate significantly positively with ex-post growth.
    Keywords: Entrepreneurship, growth firm, start-up, enterprise policy
    JEL: D92 L26 L53 M13
    Date: 2016–12–22

This nep-ent issue is ©2017 by Marcus Dejardin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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