nep-ent New Economics Papers
on Entrepreneurship
Issue of 2019‒06‒10
twelve papers chosen by
Marcus Dejardin
Université de Namur

  1. Types of Institutions and Well-Being of Self-Employed and Paid Employees in Europe By Fritsch, Michael; Sorgner, Alina; Wyrwich, Michael
  2. Why do we need self-employed persons? Some economic reflections, mainly tax related ones By Adam Adamczyk; Leszek Morawski; Jarek Neneman
  3. Peer Networks and Entrepreneurship: a Pan-African RCT By Fernando Vega-Redondo; Paolo Pin; Diego Ubfal; Cristiana Benedetti-Fasil; Charles Brummitt; Gaia Rubera; Dirk Hovy; Tommaso Fornaciari
  4. The Impact of Soft-Skills Training for Entrepreneurs in Jamaica By Ubfal, Diego; Arraiz, Irani; Beuermann, Diether; Frese, Michael; Maffioli, Alessandro; Verch, Daniel
  5. Reducing Informality Using Two-Sided Incentives: Theory and Experiment By Francisco B. Galarza; Fernando Requejo
  6. Firm soundness and knowledge externalities: a comparative regional analysis By Giuseppe Arcuri; Nadine Levratto; Aziza Garsaa; Lara Abdel Fattah
  7. Informal Sector and Mobile Financial Services in Developing Countries: Does Financial Innovation Matter? By Luc Jacolin; Massil Keneck; Alphonse Noah
  8. Communication within Banking Organizations and Small Business Lending By Ross Levine; Chen Lin; Qilin Peng; Wensi Xie
  9. Embodied and disembodied technological change: the sectoral patterns of job-creation and job-destruction By Giovanni Dosi; Mariacristina Piva; Maria Enrica Virgillito; Marco Vivarelli
  10. Growth Surge: How Private Equity Can Scale Up Firms and the Economy By Daniel Schwanen; Jeremy Kronick; Farah Omran
  11. The Community Origins of Private Enterprise in China By Ruochen Dai; Dilip Mookherjee; Kaivan Munshi; Xiaobo Zhang
  12. Micro Enterprises Performances Potential Index (MEPPI): A Study with the Reference to Rural Areas of the Cuddlier District, Tamilnadu By Pazhanisamy, R.; Selvarajan, E.

  1. By: Fritsch, Michael (University of Jena); Sorgner, Alina (John Cabot University); Wyrwich, Michael (University of Jena)
    Abstract: This paper analyzes the role of different types of institutions, such as entrepreneurship-facilitating entry conditions, labor market regulations, quality of government, and perception of corruption for individual well-being among self-employed and paid employed individuals. Well-being is operationalized by job and life satisfaction of individuals in 32 European countries measured by data from EU Statistics on Income and Living Conditions (EU-SILC). We find that institutions never affected both occupational groups in opposite ways. Our findings indicate that labor market institutions do not play an important role well-being. The results suggest that fostering an entrepreneurial society in Europe is a welfare enhancing strategy that benefits both, the self-employed and paid employees.
    Keywords: entrepreneurship, institutions, well-being, life satisfaction, job satisfaction
    JEL: L26 I31 D01 D91 P51
    Date: 2019–05
  2. By: Adam Adamczyk; Leszek Morawski; Jarek Neneman
    Abstract: For many years, we have been hearing about the need for innovation and entrepreneurship. Successive Polish government declare their support for entrepreneurs and expand the catalog of privileges, mainly related to taxes and mandatory contributions. Not infrequently, in these discussions the self-employed are equated with entrepreneurs. In this work, we will seek an answer to the questions: Who, then, are the self-employed? Are they really entrepreneurs? Should we support their activities? And finally the fundamental question: What does the economy get from the self-employed? In this work we point out that the differences in rates of self-employment between countries may result from differences in taxation on the labor provided by self-employed and salaried workers. In the main part of the work, taking advantage of the potential of the EUROMOD tax-benefit microsimulation model, we show that in Europe there is no single model of taxation of work conducted as one’s own business. In the majority of the tax-contribution systems we examined, the profitability of employment or self-employment changes along with changes in income. In light of the regressivity of the burdens on the self-employed, as a rule it begins to be profitable only above a certain income level. In the first part of the work we define the self-employed as those who run a business, and later we distinguish within this group entrepreneurs, meaning those who take on risk and create innovations. Discussing the advantages and disadvantages of self-employment from the point of view of the self-employed and the employer, we point out that the benefits – including systemic (tax and contribution) benefits, outweigh the disadvantages. We also discuss in more detail the imposition of income tax on the self-employed. In the second part we present changes in the value of self-employment over the last 25 years. Here we use data from the World Bank and certain data points from the European Union Statistics on Income and Living Conditions (EU-SILC). They allow us to observe how the relationship between the self-employed and the economy is changing: The significance of services provided for other businesses is growing. Additionally, we can see that the significance of self-employment is falling. In Poland the level of (non-agricultural) self-employment is low. The dynamics of the rate of self-employment indicate that the influence of legal regulations on the scale of self-employment is secondary. It seems that in this case, technological and demographic factors are much more significant.
    Keywords: self-employment, taxation, incentives, EUROMOD, EU-SILC
    JEL: J38 J08 H30 L53
    Date: 2019–05–08
  3. By: Fernando Vega-Redondo; Paolo Pin; Diego Ubfal; Cristiana Benedetti-Fasil; Charles Brummitt; Gaia Rubera; Dirk Hovy; Tommaso Fornaciari
    Abstract: Here we report the results of a large RCT conducted at the pan-African level that wants to shed light on the impact of peer effects on innovation and entrepreneurship. The experiment involved around 5000 entrepreneurs (some established, other just aspiring) from 49 African countries. All of those entrepreneurs completed an online business course, while only the treated ones had the additional possibility of interacting with peers, within groups of sixty, and in one of three different setups: (a) face-to-face, (b) virtually "within" (where interaction was conducted through an Internet platform in groups of entrepreneurs of the same country), (c) virtually "across" (where the virtually connected groups displayed a balanced heterogeneity across countries). After two and a half months, all participants were asked to submit business proposals. The ones submitted were then evaluated in a two-stage procedure. First, they were graded by a panel of African professionals; subsequently, the pool of highest-graded proposals were again assessed and graded by senior investors, who selected some for possible funding. Two outcome variables follow from this evaluation exercise: the (optional) decision of whether to submit a proposal, and the grades (1 to 5) obtained by the proposals that were submitted. Next, we outline our main results concerning the effect of the treatment on the two aforementioned outcomes - submission and quality (measured in the intensive margin) - as well as the combination of both of them that we call, for short, extensive quality. (1) Virtual-within interaction has a positive and significant treatment effect on the three dimensions: submission, intensive quality, and extensive quality. Instead, when interaction is face-to-face (thus also “within") only submission and the extensive quality margin are affected (positively so). (2)Virtual-across interaction yields no significant effect on any of the former three dimensions. (3)When effective on quality (cf. (1)), the treatment operates by shifting up, on average the evaluation grade of business proposals from low levels (grades 1 or 2) to high ones (grades 4 or 5). (4) The baseline quality of entrepreneurs has a positive effect on performance. However, the average such quality of the peers in one's own group has a negative composition effect on intensive quality. In fact, a similarly negative effect is also induced by peers' average experience level. (5) As a robustness test, the core treatment effects described in (1)-(2) are confirmed to remain essentially unchanged under a full range of control (baseline) variables, while the composition effects identified in (4) are found to survive a standard placebo test. As a second step in the analysis, we construct a social network in each group by defining the weigh of a directed link between two entrepreneurs as the amount of information (overall size of messages) written by one of them for which there is evidence that the other has been exposed to, then writing a subsequent message. Then, on the basis of the network structure so defined, we estimate the induced peer effects and arrive at the following conclusions. (6) In large countries (the only ones for which a sufficient number homogeneous groups can be formed), virtual-within interaction leads to positive and significant peer effects on submission and extensive quality, but not intensive quality. Instead, when entrepreneurs of large countries are exposed to virtual-across interaction, no significant peer effects arise in any of the three outcomes. (7) In the set of small countries, where only virtual-across interaction is possible, there are positive and significant peer effects on both extensive and intensive quality but not on submission. (8)Composition effects on network peers are weak, largely captured by (outcome-based) peer effects. (9) Results (6)-(7) are structurally robust to redefining the network links in the following two ways: (a) they are limited to involve less than a maximum communication lag, suitably parametrized; (b) they are two-sided, their weight tailored to the flow information channeled in both directions. A combined consideration of (1)-(9) reveals an interesting contrast between treatment and peer effects. For example, in view of (1)-(3), we may conclude that whereas some group homogeneity - or face-to-face contact - bring about positive treatment effects, the group heterogeneity induced by virtual-across interaction fails to deliver significant such effects on all three dimensions. Instead, (6)-(7) indicate that network-based peer effects deliver an intriguingly different pattern. For, under virtual-within interaction, we find that entrepreneurs' peers exert a significantly positive influence on submission (and the extensive margin) but not so on quality per se (in the intensive margin, while a some what polar behavior arises in small countries who undergo virtual-across interaction. This suggests that whereas homogeneity leads to peer interaction that is rather independent of peer performance, heterogeneity has peer performance play an important role (both in positive or negative terms, depending on the quality of that performance). Overall, this induces an effect of the treatment that is significantly positive under homogeneity (virtual-within interaction for large countries) but not strong enough to be significant under full-fledged heterogeneity (virtual-across interaction for small countries). The aforementioned contrast between the nature and implications of the treatment effects stated in (1)-(4) and the network peer effects in (6)-(8) is interesting and deserves further investigation. A possible explanation for it might hinge upon the positive role that homogeneity/familiarity may play as a source of encouragement (and hence participation), as opposed to the negative impact it could have in reducing the novelty of ideas and/or highlighting the fear of competition (thus dis-incentivizing information sharing and thus a genuine effect induced by peer performance). To gain a good understanding of these issues, however, one needs the help of theory as well as a detailed investigation of how communication actually unfolds in our context. Both lines of work are part of our ongoing research. Here, we provide a preliminary account of the latter, which is included in the final part of the paper. Our approach to semantic analysis relies on the machine-learning tools developed by the modern field of Natural Language Processing (NLP). This methodology is applied to the vast flow of information exchanged by entrepreneurs (over 140,000 messages) in order to identify, first, what have been the modes/categories of peer communication more prevalent in our context, e.g. business focus, sentiment/encouragement, target audience, etc. Then we use this information to understand what are the different patterns of communication most prevalent in our context, as captured by a corresponding set of conditional and unconditional distributions that show and how communication is associated to: (a)endogenous variables such as behavior or performance; (b) exogenous variables, such as treatment type or individual baseline characteristics. The main conclusions obtained so far can be summarized as follows. Messages are quite polarized in either the business or sentiment dimension, showing an inverse dependence in the (strong) FOSD sense between the respective distributions. Applying the same comparison criterion, we also find that highly performing agents use more business-focused messages, which are not only neutral in sentiment but also targeted to specific peers (rather than being general messages). Interestingly, however, the treatment arm (virtual-within or -across) has no significant effect on the type of communication, while baseline quality and a measure of ”motivation" do have an effect analogous to that described before for performance. Finally, we also rely on the message categorization induced by the NLP analysis to construct semantically weighted networks on two specific features/categories: business relevance and sentiment. Quite remarkably, the corresponding peer effects are found to be unaffected by either of these “semantic projections" of the social network. This suggests that, even though entrepreneurs' messages focus heavily on business issues, their communication displays a feature that is often observed in ordinary (non-virtual) interaction: there is a balance between business focus and a comparable amount of sentiment-laden talk. Keywords: Social networks, peer effects, peer networks, entrepreneurship, semantic NLP analysis.
    Date: 2019
  4. By: Ubfal, Diego (Bocconi University); Arraiz, Irani (Inter-American Development Bank); Beuermann, Diether (Inter-American Development Bank); Frese, Michael (Leuphana University Lüneburg); Maffioli, Alessandro (Inter-American Development Bank); Verch, Daniel (Leuphana University Lüneburg)
    Abstract: A randomized control trial with 945 entrepreneurs in Jamaica shows positive shortterm impacts of soft-skills training on business outcomes. The effects are concentrated among men, and disappear twelve months after the training. We argue that the main channel is increased adoption of recommended business practices, exclusively observed in the short run. We see persistent effects on an incentivized behavioral measure of perseverance after setbacks, a focus of this training. We compare a course focused only on soft-skills to one that combines soft-skills training with traditional business training. The effects of the combined training are never statistically significant.
    Keywords: business training, entrepreneurship, soft skills
    JEL: J24 L25 M13 O12
    Date: 2019–04
  5. By: Francisco B. Galarza (Universidad del Pacífico); Fernando Requejo (Universidad del Pacífico)
    Abstract: We study the impact of two-sided incentives on the reduction of informality. We model those incentives using the notion of network externalities, which link the (formal or informal) merchant’s profits to the type of customers they serve (formal or informal). Our theoretical framework yields two straightforward testable implications: the merchant will find more profitable to become formal (or informal), as long as more of their customers are formal (or informal); and, formal and informal commercial sectors may coexist in equilibrium. We test these hypotheses using data from a field experiment, conducted with micro and small enterprises in Lima, Peru. Our subjects had to choose, in a repeated fashion, among three ‘platforms’, which proxy for being formal, informal, or performing a reservation activity. We then changed the relative size of the network of formal vis-á-vis informal customers, in order to calculate the consumer’s network externality. We find that the network externality is relatively large, a result that opens up the possibility to reduce commercial informality using two-sided incentives. Moreover, the platform choice between the formal and informal sectors is sensitive to risk preferences.
    Keywords: Network externality, informality, two-sided incentives, experiments
    JEL: C93 E26 O17
    Date: 2019–06
  6. By: Giuseppe Arcuri; Nadine Levratto; Aziza Garsaa; Lara Abdel Fattah
    Abstract: This paper investigates the role of regional context with regard to human capital and knowledge spillover effects in SMEs’ financial soundness. Our empirical setting is based on the multilevel analysis for panel data, which better allows for the treatment of hierarchical data. It is applied to firms belonging to the industrial sector and operating in four European countries over the 2010–2015 period. We find that a combination of individual- and regional-level characteristics explain firm soundness more accurately than individual features alone. Furthermore, we find that a higher local educational level and knowledge spillover improve the firm soundness.
    Keywords: Entreprise et territoire, capital humain, robustesse financière de l'entreprise, modèle multiniveau
    JEL: I25 L26 R11 C33
    Date: 2019
  7. By: Luc Jacolin; Massil Keneck; Alphonse Noah
    Abstract: This paper investigates the impact of mobile financial services - MFS (mobile money, and mobile credit and savings) on the informal sector. Using both parametric and non-parametric methods on panel data from 101 emerging and developing countries over the period 2000-15, we find that MFS negatively affect the size of the informal sector. According to estimates derived from propensity score matching, MFS adoption decreases the informal sector size in a range of 2.4 – 4.3 percentage points of GDP. These formalization effects may stem from different possible transmission channels: improvement in credit access, increase in the productivity/profitability of informal firms attenuating subsistence constraints typical of entrepreneurship in the informal sector, as well as possible induced growth of firms already in the formal sector. The robustness of these results is supported by the use of an alternative estimation approach (instrumental variables). These findings lay the groundwork for the scarce literature on the macroeconomic impact of mobile financial services, a major dimension of the growing drive towards economic digitalization transiting through industry-level MW.
    Keywords: Mobile financial services, Mobile money, Financial innovation, Digitalization, Informal sector, Developing countries.
    JEL: C26 E26 O33 G29 L96
    Date: 2019
  8. By: Ross Levine; Chen Lin; Qilin Peng; Wensi Xie
    Abstract: We investigate how communication within banks affects small business lending. Using travel time between a bank’s headquarters and its branches to proxy for the costs of communicating soft information, we exploit shocks to these travel times to evaluate the impact of within bank communication costs on small business loans. Consistent with Stein’s (2002) model of the transmission of soft information across a bank’s hierarchies, we find that reducing headquarters-branch travel time boosts small business lending in the branch’s county. Several extensions suggest that new airline routes facilitate the transmission of soft information, boosting small firm lending.
    JEL: D83 G21 G30
    Date: 2019–05
  9. By: Giovanni Dosi; Mariacristina Piva; Maria Enrica Virgillito; Marco Vivarelli
    Abstract: This paper addresses, both theoretically and empirically, the sectoral patterns of job creation and job destruction in order to distinguish the alternative effects of embodied vs disembodied technological change operating into a vertically connected economy. Disembodied technological change turns out to positively affect employment dynamics in the üupstreamùù sectors, while expansionary investment does so in the üdownstreamùù industries. Conversely, the replacement of obsolete capital vintages tends to exert a negative impact on labour demand, although this effect turns out to be statistically less robust.
    Keywords: Innovation; disembodied and capital-embodied technological change; employment; job- creation; job-destruction; sectoral interdependencies.
    Date: 2019–05–29
  10. By: Daniel Schwanen (C.D. Howe Institute); Jeremy Kronick (C.D. Howe Institute); Farah Omran (C.D. Howe Institute)
    Keywords: Financial Services and Regulation; Business and Capital Taxation;Business Investment;Capital Markets;Venture Capital
    JEL: G32 G28 O16
    Date: 2019–05
  11. By: Ruochen Dai (Peking University); Dilip Mookherjee (Boston University); Kaivan Munshi (University of Cambridge); Xiaobo Zhang (Peking University)
    Abstract: This paper identifies and quantifies the role played by birth-county-based community networks in the growth of private enterprise in China. The starting point for the analysis is the observation that population density is positively associated with local social interactions, social homogeneity, and enforceable trust in counties (but not cities). This motivates a model of network-based spillovers that predicts how the dynamics of firm entry, concentration, and firm size vary with birth county population density. The predictions of the model are validated over the 1990-2009 period with administrative data covering the universe of registered firms. Competing non-network-based explanations can explain some, but not all of the results. We subsequently estimate the structural parameters of the model and conduct counter-factual simulations, which indicate that entry and capital stock over the 1995-2004 period would have been 40% lower without community networks. Additional counter-factual simulations shed light on misallocation and industrial policy.
    Keywords: Community Networks. Enforceable Trust. Entrepreneurship. Misallocation. Informal Institutions. Growth and Development.
    JEL: J12 J16 D31 I3
    Date: 2019–02
  12. By: Pazhanisamy, R.; Selvarajan, E.
    Abstract: Micro enterprises are recognized as the prime source of livelihood for the poor population in the rural areas around the globe. The impact of micro enterprises on the rural economy is determined by the performance of these micro enterprises, their success rate and the potential for the sustainability in the market which depends upon the various factors like financial capability, profitability, resource availability, demand in the market, skill up gradation of the micro entrepreneurs and the competitiveness. In addition to this the factors such as labour, the performance potential of the micro enterprises, capital availability with low cost technology, raw materials availability, better infrastructure, political stability and the supportive economics policies like subsidies and export import guidance and many others join together to determine the performance and sustainability of the micro enterprises. A successful entrepreneur needs to be known and ready to adopt the necessary changes and differentiations in the product suitable to the market change which warrants the entrepreneurs knowledge about the dynamics of the market conditions regarding the trend in the demand, demand forecasting, performance evaluation of the enterprises at the particular period and its production and market potential for the future. The available literature about the performance of micro enterprises reveals that lake of timely assessment about the concurrent performance of the micro enterprise and their performance potential for the future leads to the failure of the products and the microenterprises (Olawale (2014), Beck (2009) Suidarma, I., Sara, I., Anggaradana, I., & Pratiwi, I. G. (2018), Mbugua Stephen Kamunge ,Agnes Njeru , Ondabu Ibrahim Tirimba, (2018) , Bushu and Government of India (2019) which calls for an in-depth attempt to discover the resource and market potential for the best performance of the micro enterprises at the gross root level. This paper is attempted to fill this gap in research.
    Keywords: Micro Enterprises Performance Index,Potential Performance Index,Rural Micro Enterprises index,Sustainability of Micro Enterprises,Challenges of Micro Enterprises,MEPPI
    Date: 2019

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