nep-ent New Economics Papers
on Entrepreneurship
Issue of 2023‒10‒02
thirteen papers chosen by
Marcus Dejardin, Université de Namur

  1. Committing to grow: Privatizations and firm dynamics in East Germany By Akcigit, Ufuk; Alp, Harun; Diegmann, André; Serrano-Velarde, Nicolas
  2. Partial Observability Estimates of Supply and Demand for Trademarks of Start-Ups By Bernadette Power; Gavin C. Reid
  3. Harnessing the Power of Artificial Intelligence to Forecast Startup Success: An Empirical Evaluation of the SECURE AI Model By Morande, Swapnil; Arshi, Tahseen; Gul, Kanwal; Amini, Mitra
  4. Small and Medium Enterprises Amidst the Pandemic and Reopening: Digital Edge and Transformation By Lin William Cong; Xiaohan Yang; Xiaobo Zhang
  5. Entrepreneurship and the Efficiency Effects of Migration By Gustavo González
  6. Occupational Choice, Human Capital, and Financial Constraints By Rui Castro; Pavel Sevcik
  7. Gender differences in management styles during crisis and the effect on firm performance By Valerija Botric; Sonja Radas; Bruno Skrinjaric
  8. Developing a Co-constructed Autoethnographic Approach to Understand Personal Values-Guided Social Entrepreneurship By Lichtenstein, Scott; Fenn, Paul; Kah, Sally
  9. Small Businesses and Digital Platforms By Nishant Chadha; Viswanath Pingali; Daniel Sokol
  10. Startup Employment and Career Trajectories By Gonzalo García-Trujillo; Nathalie González-Prieto; Alvaro Silva
  11. Foreign Investment and Local Enterprise: Navigating the Tightrope of FDI Inflows and Homegrown Entrepreneurship By Yeboah, Samuel; Boateng Prempeh, Kwadwo
  12. "Unlocking the Global Chessboard: FDI Policies and their Impact on Entrepreneurial Ecosystems" By Yeboah, Samuel
  13. "Unlocking Sustainable Futures: How FDI-Driven Entrepreneurial Ecosystems Power the SDGs" By Asuamah Yeboah, Samuel

  1. By: Akcigit, Ufuk; Alp, Harun; Diegmann, André; Serrano-Velarde, Nicolas
    Abstract: This paper investigates a unique policy designed to maintain employment during the privatization of East German firms after the fall of the Iron Curtain. The policy required new owners of the firms to commit to employment targets, with penalties for non-compliance. Using a dynamic model, we highlight three channels through which employment targets impact firms: distorted employment decisions, increased productivity, and higher exit rates. Our empirical analysis, using a novel dataset and instrumental variable approach, confirms these findings. We estimate a 22% points higher annual employment growth rate, a 14% points higher annual productivity growth, and a 3.6% points higher probability of exit for firms with binding employment targets. Our calibrated model further demonstrates that without these targets, aggregate employment would have been 15% lower after 10 years. Additionally, an alternative policy of productivity investment subsidies proved costly and less effective in the short term.
    Keywords: industrial policy, privatizations, productivity, size-dependent regulations
    JEL: D22 D24 J08 L25
    Date: 2023
  2. By: Bernadette Power; Gavin C. Reid
    Abstract: This paper estimates simultaneously the supply and the demand determinants of the trademark adoption decision made by start-ups. We use a partial observability econometric model, as non-adoption is unobserved. Estimation is by maximum likelihood using the partial observability bivariate probit (POBP) model. This is run on a large (N > 13k) representative unbalanced longitudinal panel of surviving startups, derived from the Kauffman Foundation startup dataset (2004-2011) for the USA. Our model is shown to provide a good explanation of supply and demand determinants of trademark adoption, in terms of signs of key variables, and statistical significance. For example, size, incorporation, and expenditure on R&D are important on the supply-side; and copyrights, licensing out, and being in a high knowledge information sector, are important on the demand-side. Policy implications are considered, focusing on marginal and elasticity effects.
    Keywords: Trademark adoption, business start-ups, intellectual property, supply, and demand
    JEL: D01 D22 K11 L21 L26
    Date: 2023–06
  3. By: Morande, Swapnil; Arshi, Tahseen; Gul, Kanwal; Amini, Mitra
    Abstract: This pioneering study employs machine learning to predict startup success, addressing the long-standing challenge of deciphering entrepreneurial outcomes amidst uncertainty. Integrating the multidimensional SECURE framework for holistic opportunity evaluation with AI's pattern recognition prowess, the research puts forth a novel analytics-enabled approach to illuminate success determinants. Rigorously constructed predictive models demonstrate remarkable accuracy in forecasting success likelihood, validated through comprehensive statistical analysis. The findings reveal AI’s immense potential in bringing evidence-based objectivity to the complex process of opportunity assessment. On the theoretical front, the research enriches entrepreneurship literature by bridging the knowledge gap at the intersection of structured evaluation tools and data science. On the practical front, it empowers entrepreneurs with an analytical compass for decision-making and helps investors make prudent funding choices. The study also informs policymakers to optimize conditions for entrepreneurship. Overall, it lays the foundation for a new frontier of AI-enabled, data-driven entrepreneurship research and practice. However, acknowledging AI’s limitations, the synthesis underscores the persistent relevance of human creativity alongside data-backed insights. With high predictive performance and multifaceted implications, the SECURE-AI model represents a significant stride toward an analytics-empowered paradigm in entrepreneurship management.
    Date: 2023–08–29
  4. By: Lin William Cong (Cornell University Johnson Graduate School of Management); Xiaohan Yang (Peking University National School of Development); Xiaobo Zhang (Peking University Guanghua School of Management; International Food Policy Research Institute; Center for Global Development)
    Abstract: Using administrative universal firm registration data as well as primary offline and online surveys of small business owners in China, we examine (i) whether the digitization of business operations helps small and medium enterprises (SMEs) better cope with the pandemic shock, and (ii) if the pandemic has induced digital technology adoption. We identify significant economic benefits of digitization in increasing SMEs’ resilience against such a large shock, as seen through mitigated demand decline, sustainable cash flow, ability to quickly reopen, and positive outlook for growth. After the lockdown in January 2020, firm entries have exhibited a V-shaped pattern, with entries of e-commerce firms experiencing a less pronounced initial drop and a quicker rebound. The COVID-19 pandemic has also accelerated digital technology adoption of existing firms in various dimensions (captured by, e.g., the alteration of operation scope to include e-commerce activities, allowing remote work, and adoption of electronic information system), and the effect persists after one year of full reopening.
    Keywords: SMEs, COVID-19, Digital economy, E-commerce
    Date: 2021–12–10
  5. By: Gustavo González
    Abstract: This paper constructs and calibrates a parsimonious two-country dynamic general equilibrium model of entrepreneurship and migration. Countries differ in their TFP and degree of financial frictions. The model is calibrated to replicate the economic and migratory situation of the United States and the rest of the world. I evaluate the impact of changing migration barriers on GDP per capita, average firms productivity, business ownership rates, and consumption on both regions. I find that migration barriers have a non-monotone impact on the average productivity of the host coun-try, depending this on the entrepreneurial skill and mass of people that move in and are displaced by entrants. A migration policy that favors the entry of foreign people with a higher entrepreneurial drive would reduce profits of native entrepreneurs, but would make the economy more efficient and would lift the welfare of workers of the host economy.
    Date: 2023–07
  6. By: Rui Castro (McGill University); Pavel Sevcik (University of Quebec in Montreal)
    Abstract: We study the aggregate productivity effects of firm-level financial frictions. Credit constraints affect not only production decisions, but also household level schooling decisions. In turn, entrepreneurial schooling decisions impact firm-level productivities, whose cross-sectional distribution becomes endogenous. In anticipation of future constraints, entrepreneurs under-invest in schooling early in life. Frictions lower aggregate productivity because talent is misallocated across occupations, and capital misallocated across firms. Firm level productivities are also lower due to schooling distortions. These effects combined account for between 36 and 68 percent of the U.S.-India aggregate productivity difference. Schooling distortions are the major source of aggregate productivity differences.
    Keywords: Aggregate Productivity, Financial Frictions, Entrepreneurship, Human Capital, Misallocation
    JEL: E24 I25 J24 O11 O15 O16 O47
    Date: 2023–08
  7. By: Valerija Botric (The Institute of Economics, Zagreb); Sonja Radas (The Institute of Economics, Zagreb); Bruno Skrinjaric (The Institute of Economics, Zagreb)
    Abstract: This paper aims to shed light on gender differences in firm performance in a period that entails an unprecedented crisis with specific effects on gender roles, i.e., COVID-19. The analysis focuses on Croatian high-tech manufacturing and knowledge-intensive service sector SMEs. Previous literature indicates that the obstacles the SMEs face may be even more significant for women-owned firms. Specifically, women entrepreneurs find it more challenging to secure social and financial capital. Women often face restrictions on their working hours due to societal pressure and family obligations, and they are rarely well-connected because they are often not members of influential business networks. Literature also suggests that the usual pressures on female working hours have disproportionally increased during the COVID-19 imposed lockdowns, so the general expectation is that women entrepreneurs were not able to cope equally with the changed market circumstances. In this study, we consider a causation-effectuation management framework to investigate how women- and men-owned SMEs used these management styles to address the business challenges in the COVID-19 crisis. Our contribution aims explicitly to answer the invitation made in recent literature to explore how gender influences the effects of the four dimensions of effectuation on firm performance.
    Keywords: women entrepreneurship; firm performance; management styles; COVID-19
    JEL: B54 J16 L26
    Date: 2023–07
  8. By: Lichtenstein, Scott; Fenn, Paul; Kah, Sally
    Abstract: This research aims to uncover how the personal values of a social enterprise CEO (Paul) influence strategic leadership and choices. We adopt the upper-echelon theory by Hambrick and Mason (1984) of bounded rationality to provide insights into the lived experience of an executive social entrepreneur - how personal values influence the establishment of Local Power and subsequent strategic decisions. To achieve this, we followed Kempster and Stewart's (2010) co-produced auto-ethnography approach, described as two parts of a sandwich: the ‘bread’ as the interpreted observations and the filling as the reflections on the experience. The 'meat' of Paul's auto-ethnographic sandwich reflected significant episodes from 1995 to 2022 when he developed Local Power, California C Corp CEO and LLC President. From a theoretical perspective, this research contributes to creative opportunity recognition and the coupling of personal values that influence strategic leadership and choices in social entrepreneurship.
    Keywords: Strategic leadership; personal values; social entrepreneur; USA
    Date: 2023–09–13
  9. By: Nishant Chadha; Viswanath Pingali; Daniel Sokol
    Abstract: We investigate strategies of small businesses’ usage of digital platforms for advertising and sales. We rely on primary data from a quantitative survey of small business startups, and a few in-depth interviews of small business owners. We find that small firms prefer digital platforms for advertising and sales over conventional methods. As firms grow, while they continue to rely on digital advertising, their preference for conventional advertising (radio, television, etc.) increases. We find a strong correlation between the geographical spread of small firm sales, including exports, and their propensity to use digital platforms. We also find that small businesses multihome on both advertising and sales platforms. Multihoming occurs across established platforms and between established and nascent platforms. Our results enhance the understanding of how small firms rely on platforms and inform the policy debates on platform regulation.
    Date: 2023–09–18
  10. By: Gonzalo García-Trujillo; Nathalie González-Prieto; Alvaro Silva
    Abstract: We study how working for a startup affects labor market outcomes using Chilean employer-employee data. Findings reveal that joining a startup results in a 6.7% reduction in earnings over the next five years, with half attributed to lower average earnings and a half to spending more time out of formal employment. Workers at startups also exhibit a lower probability of being employed and experiencing job-to-job transitions. They also hold fewer jobs. These effects are persistent but vary across worker and firm characteristics. In particular, startups that survive have a smaller earnings penalty, while top-performing startups offer an earnings premium.
    Date: 2023–04
  11. By: Yeboah, Samuel; Boateng Prempeh, Kwadwo
    Abstract: This systematic review explores the multifaceted challenges and opportunities presented by Foreign Direct Investment (FDI) inflows for local entrepreneurial development. FDI is known to bring both potential benefits and pitfalls for local startups, and understanding this delicate balance is crucial for sustainable economic growth. Firstly, FDI often ushers in increased competition as well-funded foreign firms enter local markets. While this can hinder local startups' market share, it can also stimulate innovation and efficiency. Secondly, local entrepreneurs relying heavily on FDI face dependency risks, as shifts in foreign investors' priorities or sudden exits can disrupt their operations. Thirdly, FDI can transfer technology and knowledge but also poses the risk of technology leakage, potentially stifling local startups' independent capabilities. Fourthly, asymmetrical power dynamics between foreign investors and local startups can result in unequal partnerships. Lastly, FDI might lead to market fragmentation, overshadowing local players and limiting diversity and competition. Furthermore, cultural differences in corporate cultures and management styles can create collaboration challenges between foreign corporations and local startups. In navigating these challenges, local startups must adopt strategies to differentiate themselves from foreign competitors, negotiate fair partnerships, and foster cross-cultural collaboration. Policymakers also play a crucial role in balancing the benefits and costs of FDI through measures that prevent or mitigate market fragmentation and promote interoperability and harmonization across industries. Understanding the nuanced interplay between FDI and local entrepreneurship is essential for achieving sustainable economic growth and fostering innovation in a globalized world.
    Keywords: Foreign Direct Investment (FDI); Local Entrepreneurship; Challenges; Opportunities; Competition; Dependency Risks; Technology Leakage; Power Dynamics; Market Fragmentation; Cultural Challenges; Economic Growth; Innovation; Sustainable Development; Cross-Cultural Collaboration; Market Share
    JEL: D22 F21 F23 L20 L26 L53 M21 O16 O33 O57
    Date: 2023–07–14
  12. By: Yeboah, Samuel
    Abstract: This analysis delves into the diverse landscape of Foreign Direct Investment (FDI) policies within developing nations and their profound implications for entrepreneurial ecosystems. Through comparative analysis, the study uncovers a range of strategies countries employ, from liberal to restrictive FDI approaches, which significantly impact interactions between foreign investors and local startups, ultimately shaping innovation, growth, and competitiveness in entrepreneurial ecosystems. In some developing nations, liberal FDI policies play a pivotal role, strategically designed to attract foreign capital, technology, and expertise. For instance, Singapore and Ireland have implemented proactive, incentive-driven measures, particularly in high-tech sectors, resulting in thriving entrepreneurial ecosystems integrated into global value chains. These policies foster collaborative environments, granting local startups improved access to capital, markets, and invaluable knowledge from foreign investors. Conversely, other nations adopt more restrictive FDI policies to safeguard strategic sectors and protect domestic enterprises from undue foreign influence. India and China exemplify this approach, erecting regulatory barriers in industries like telecommunications and banking to retain policy autonomy and nurture domestic capabilities. While preserving local interests, these policies inadvertently limit access to FDI benefits, including advanced technologies, skills, and global market connectivity. Governments often utilize incentive schemes such as tax breaks and subsidies to attract FDI, making their countries appealing to foreign investors and providing local startups with essential resources and mentorship, significantly contributing to their growth. However, ownership restrictions, particularly in strategically significant sectors, serve to protect domestic control but may discourage potential investors and hinder collaboration between startups and foreign entities. Striking a balance between preserving sovereignty and promoting global integration becomes a pivotal challenge for these nations. The regulatory environment plays a central role in shaping the relationship between FDI policies and entrepreneurial ecosystems. Favourable regulatory frameworks that encourage competition, safeguard intellectual property and simplify business registration drive innovation and attract FDI, which subsequently benefits startups. Transparent regulations that reduce uncertainty and risks bolster investor confidence, making FDI a potential lifeline for local startups.
    Keywords: Entrepreneurial Ecosystems; Comparative Analysis; Liberal FDI Policies; Restrictive FDI Policies; Incentive Schemes; Ownership Restrictions; Regulatory Environment; Innovation; Investor Confidence; Ease of Doing Business; Policy Alignment
    JEL: F21 F23 G38 L26
    Date: 2023–07–18
  13. By: Asuamah Yeboah, Samuel
    Abstract: This systematic review explores the dynamic relationship between Foreign Direct Investment (FDI)-driven entrepreneurial ecosystems and the United Nations' Sustainable Development Goals (SDGs). FDI is recognized as a potent catalyst for global development, and its alignment with specific SDGs can create a transformative impact across various domains. By strategically harnessing FDI, countries can accelerate their progress towards achieving the SDGs and building a more inclusive and equitable future. The study identifies several key SDGs where FDI-driven entrepreneurial ecosystems play a pivotal role: SDG 1: No Poverty: FDI fosters economic growth, generates employment opportunities, and enhances labour productivity, consequently alleviating poverty. It contributes to improving wages, human capital development, and overall well-being. SDG 8: Decent Work and Economic Growth: FDI-supported ecosystems promote inclusive economic growth by creating jobs and enhancing working conditions. They boost local productivity, induce employment, and stimulate consumption. SDG 9: Industry, Innovation, and Infrastructure: FDI brings technological innovation, knowledge transfer, and advanced infrastructure, fostering innovation and enhancing local business competitiveness. SDG 10: Reduced Inequality: FDI empowers marginalized communities, enabling them to access resources, markets, and global networks, thus reducing inequality. SDG 17: Partnerships for the Goals: FDI-driven partnerships between foreign corporations and local startups leverage expertise, resources, and networks to collectively achieve various SDGs. Such collaborations aim to align with the principles and objectives of SDG 17. SDG 4: Quality Education: Multinational corporations' involvement in FDI can lead to educational initiatives, skill development programs, and technology transfers that enhance educational quality. SDG 13: Climate Action: FDI-driven innovation results in sustainable technologies, cleaner production processes, and environmental solutions contributing to climate action. SDG 16: Peace, Justice, and Strong Institutions: FDI promotes transparency, accountability, and ethical business practices, strengthening institutions and contributing to a stable business environment. SDG 5: Gender Equality: FDI-supported startups empower women entrepreneurs, enhance gender diversity in the workforce, and create opportunities for women's economic participation. SDG 11: Sustainable Cities and Communities: FDI-driven entrepreneurial ecosystems contribute to urban development through smart technologies, sustainable infrastructure, and innovative solutions. SDG 7: Affordable and Clean Energy: FDI plays a critical role in the adoption of clean energy technologies, supporting the transition to renewable energy sources.
    Keywords: Poverty Alleviation, Economic Growth, Innovation, Inequality Reduction, Partnerships, Quality Education, Climate Action, Strong Institutions, Gender Equality, Sustainable Urban Development, Clean Energy Adoption.
    JEL: F21 F23 O31 O32 O33 O38 O40 O41 O43 O44 O57
    Date: 2023–07–20

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