nep-ent New Economics Papers
on Entrepreneurship
Issue of 2023‒10‒09
twelve papers chosen by
Marcus Dejardin, Université de Namur

  1. Declining business dynamism in Europe: The role of shocks, market power, and technology By Biondi, Filippo; Inferrera, Sergio; Mertens, Matthias; Miranda, Javier
  2. Committing to Grow: Privatizations and Firm Dynamics in East Germany By Ufuk Akcigit; Harun Alp; André Diegmann; Nicolas Serrano-Velarde
  3. Government Investments and Entrepreneurship By Joao Ricardo Faria; Laudo Ogura; Mauricio Prado; Christopher J. Boudreaux
  4. Failing Just Fine: Assessing Careers of Venture Capital-backed Entrepreneurs via a Non-Wage Measure By Graham J. Abbott; Natee Amornsiripanitch; Paul Gompers; George Hu; Will Levinson; Vladimir Mukharlyamov
  5. The Effect of Immigration Policy on Founding Location Choice: Evidence from Canada's Start-up Visa Program By Saerom (Ronnie) Lee; Britta Glennon
  6. Which European firms were hardest hit by COVID-19? By Coad, Alexander; Bauer, Péter; Domnick, Clemens; Harasztosie, Péter; Pál, Rozália; Teruel, Mercedes
  7. Start-up Acquisitions and the Entrant’s and Incumbent’s Innovation Portfolios By Esmée Dijk; José Luis Moraga-González; Evgenia Motchenkova
  8. A Firm of One’s Own: Experimental Evidence on Credit Constraints and Occupational Choice By Andrew Brudevold-Newman; Maddalena Honorati; Gerald Ipapa; Pamela Jakiela; Owen Ozier
  9. What Predicts the Growth of Small Firms? Evidence from Tanzanian Commercial Loan Data By Mia Ellis; Cynthia Kinnan; Margaret S. McMillan; Sarah Shaukat
  10. "The Dual Nature of FDI: Boosting Local Startups and SMEs While Posing Challenges" By Gyan, Sylvester; James Nyarkoh, Bright; Yeboah, Samuel
  11. "Harmonizing FDI and Local Entrepreneurship: Strategies for Inclusive Growth" By Yeboah, Samuel; Gyan, Sylvester; James, Bright
  12. The Impact of Venture Capital on Economic Growth By Steven Poelhekke; Benjamin Wache

  1. By: Biondi, Filippo; Inferrera, Sergio; Mertens, Matthias; Miranda, Javier
    Abstract: We study the changing patterns of business dynamism in Europe after 2000 using novel micro-aggregated data that we collect for 19 European countries. In all of them, we document a decline in job reallocation rates that concerns most economic sectors. This is mainly driven by dynamics within sectors, size classes, and age classes rather than by compositional changes. Large and mature firms show the strongest decline in job reallocation rates. Simultaneously, the shares of employment and sales of young firms decline. Consistent with US evidence, firms' employment changes have become less responsive to productivity. However, the dispersion of firms' productivity shocks has decreased too. To enhance our understanding of these patterns, we derive a firm-level framework that relates changes in firms' productivity, market power, and technology to job reallocation and firms' responsiveness.
    Keywords: business dynamism, European cross-country data, market power, productivity, responsiveness of labor demand
    JEL: D24 J21 J23 J42 L11 L25
    Date: 2023
  2. By: Ufuk Akcigit; Harun Alp; André Diegmann; Nicolas Serrano-Velarde
    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.
    JEL: D22 D24 J08 O4
    Date: 2023–08
  3. By: Joao Ricardo Faria; Laudo Ogura; Mauricio Prado; Christopher J. Boudreaux
    Abstract: How can governments attract entrepreneurs and their businesses? The view that new business creation grows with the optimal level of government investments remains appealing to policymakers. In contrast with this active approach, we build a model where governments may adopt a passive approach to stimulating business creation. The insights from this model suggest new business creation depends positively on factors beyond government investments--attracting high-skilled migrants to the region and lower property prices, taxes, and fines on firms in the informal sector. These findings suggest whether entrepreneurs generate business creation in the region does not only depend on government investments. It also depends on location and skilled migration. Our model also provides methodological implications--the relationship between government investments and new business creation is endogenously determined, so unless adjustments are made, econometric estimates will be biased and inconsistent. We conclude with policy and managerial implications.
    Date: 2023–09
  4. By: Graham J. Abbott; Natee Amornsiripanitch; Paul Gompers; George Hu; Will Levinson; Vladimir Mukharlyamov
    Abstract: This paper proposes a non-pecuniary measure of career achievement: seniority. Based on a database of over 130 million resumes, this metric exploits the variation in how long it takes to attain job titles. When non-monetary factors influence career choice, assessing career attainment via non-wage measures, such as seniority, has significant advantages. Accordingly, we use our seniority measure to study labor market outcomes of VC-backed entrepreneurs. Would-be founders experience accelerated career trajectories prior to founding, significantly outperforming graduates from same-tier colleges with similar first jobs. After exiting their start-ups, they obtain jobs about three years more senior than their peers who hold (i) same-tier college degrees, (ii) similar first jobs, and (iii) similar jobs immediately prior to founding their company. Even failed founders find jobs with higher seniority than those attained by their non-founder peers.
    Keywords: career progression; entrepreneurship; venture capital
    JEL: G00 J00 J3 J30 J31 J44 J6 J63
    Date: 2023–08–28
  5. By: Saerom (Ronnie) Lee; Britta Glennon
    Abstract: To spur entrepreneurship and economic growth, an increasing number of countries have introduced immigration policies that provide visas to skilled entrepreneurs. This paper investigates whether these policies influence the founding location choice of immigrant founders, by leveraging the introduction of Canada's Start-up Visa Program in 2013. We demonstrate that this immigration policy increased the likelihood that U.S.-based immigrants have a start-up in Canada by 69%. Our results show that Asian immigrants (who have a higher representation in Canada than in the U.S.) are disproportionately more likely to migrate to Canada to start their businesses, whereas Hispanic immigrants (who have a smaller representation in Canada than in the U.S.) are less inclined to do so. We also find that this propensity varies with the size of co-ethnic immigrant communities in the origin location. Overall, our study unveils the importance of immigration policies in determining founding location choice and has important implications for countries competing for global talent.
    JEL: F20 F22 J60 M13
    Date: 2023–08
  6. By: Coad, Alexander; Bauer, Péter; Domnick, Clemens; Harasztosie, Péter; Pál, Rozália; Teruel, Mercedes
    Abstract: The COVID-19 shock hit firms hard, on average, but how did it hit in the distribution of firms, differently between the high-growth superstars and the firms that were already struggling to survive? This paper implements graphical techniques and quantile regression to analyse the effect of the COVID-19 shock across the distribution of firms. It impacted negatively the growth of sales and value added all across the growth rate distribution with an effect that was slightly larger at the lower quantiles. For employment growth, while the effect was null for most firms, it was not at the lower tail. Analysis of subsamples, as well as quantile regressions with interaction terms, emphasize that firms that received policy support and those from the service sector were relatively more strongly affected by the COVID-19 shock, especially those that were fast decreasing ones. The results confirm the view that the COVID-19 policy support reached the intended recipients.
    Keywords: Firm growth, growth rates distribution, COVID-19 shock, quantile regression, hanging rootogram
    Date: 2023
  7. By: Esmée Dijk (Vrije Universiteit Amsterdam); José Luis Moraga-González (Vrije Universiteit Amsterdam); Evgenia Motchenkova (Vrije Universiteit Amsterdam)
    Abstract: An entrant and an incumbent engage in an investment portfolio problem where each chooses how to allocate its research funds across a rival market, where they compete with one another, and a non-rival market, where they do not interact. Allowing for acquisitions distorts both players’ incentives to allocate funding across their rival and non-rival projects. We show conditions under which the incumbent, anticipating the rents that accrue from the monopolization of the rival market, moves R&D resources from other markets to the rival market. This “incumbency for buyout effect” lowers the expected rents the entrant obtains from the contestable market, which gives it incentives to move its investment portfolio away from the rival market. We show that this strategic effect dominates the usual “innovation for buyout effect” when the entrant’s bargaining power is below a threshold. Allowing for acquisitions may improve the direction of innovation of each of the players as well as consumer surplus. Because precisely the shift of resources towards and away from non-rival projects causes the welfare gains and losses, using the traditional definition-of-the-market approach to assess the impact of acquisitions should be reconsidered.
    Keywords: start-up acquisitions, innovation portfolios, direction of innovation, incumbency for buyout, innovation for buyout
    JEL: O31 L13 L41
    Date: 2023–08–03
  8. By: Andrew Brudevold-Newman (World Bank); Maddalena Honorati (World Bank); Gerald Ipapa (University of Delaware); Pamela Jakiela (Williams College; BREAD; Center for Global Development; IZA; J-PAL); Owen Ozier (Williams College; BREAD; IZA; J-PAL)
    Abstract: We evaluate two labor market interventions targeting young women in Nairobi, Kenya. The first was a multifaceted program involving vocational training, in-kind transfers of physical capital, and ongoing mentoring. The second was an unrestricted cash grant. Both interventions shift women into self-employment, impacts which persist after six years. Both programs also increase income in the short-term, but those effects disappear over time. Though the two treatments have similar impacts on labor market outcomes, women in the multifaceted program report significantly higher wellbeing six years after treatment relative to both women in the control group and those who received the grants.
    Keywords: youth unemployment, vocational training, cash grants, microenterprises, entrepreneurship, occupational choice, credit constraints, Africa, gende
    JEL: J24 M53 O12
    Date: 2023–05–17
  9. By: Mia Ellis; Cynthia Kinnan; Margaret S. McMillan; Sarah Shaukat
    Abstract: Not all firms have equal capacity to absorb productive credit. Identifying those with higher potential may have large consequences for productivity. We collect detailed survey data on small- and medium-sized Tanzanian firms who borrow from a large commercial bank, which in turn raises funds via international capital markets. Using machine learning methods to identify predictors of loan growth, we document, first, that we achieve high rates of predictive power. Second, “soft” information (entrepreneurs’ motivations for entrepreneurship and constraints faced) has predictive power over and above administrative data (sector, age, etc.). Third, there is a different and larger set of predictors for women than men, consistent with greater barriers to efficient capital allocation among female entrepreneurs.
    JEL: G14 J16 O16
    Date: 2023–08
  10. By: Gyan, Sylvester; James Nyarkoh, Bright; Yeboah, Samuel
    Abstract: This systematic review delves into the multifaceted relationship between Foreign Direct Investment (FDI) and entrepreneurial ecosystems, with a particular focus on the impact of FDI on local startups and Small and Medium-sized Enterprises (SMEs). The study investigates both the positive and negative effects of FDI, shedding light on its role as a double-edged sword in shaping local entrepreneurial landscapes. The positive effects encompass access to vital funding, enhanced resources, market expansion opportunities, the magnetism of skilled talent, and a culture of knowledge sharing. FDI serves as a lifeline, bridging the funding gap that often hampers local startups, and infusing them with the capital essential for growth, innovation, and global market access. Additionally, foreign investors bring valuable resources, advanced technologies, and managerial expertise, augmenting the capabilities of local entrepreneurs. The presence of foreign corporations also facilitates market expansion, enabling local startups to access international markets and leverage established investor networks. Furthermore, FDI acts as a talent magnet, attracting skilled professionals to the region, thereby enriching the local labour pool. Moreover, interaction with foreign investors fosters a culture of knowledge sharing, exposing local entrepreneurs to global best practices and diverse perspectives. However, alongside these positive effects, negative consequences emerge. Increased competition from foreign firms can stifle the growth prospects of local startups. An overreliance on foreign investors for funding and resources can make local startups vulnerable to shifts in investor sentiment. Unequal power dynamics may lead to unequal partnerships, where local startups have limited negotiating leverage. Moreover, the transfer of technology and knowledge raises concerns about the outflow of critical intellectual property. This systematic review critically examines these dynamics, offering valuable insights into the intricacies of FDI's impact on entrepreneurial ecosystems. The findings inform policymakers, entrepreneurs, and investors alike, guiding them in optimizing the benefits of FDI while mitigating its potential pitfalls. By understanding the complex interplay between FDI and local startups, stakeholders can foster a more vibrant and resilient entrepreneurial ecosystem, conducive to innovation, growth, and sustainability.
    Keywords: Foreign Direct Investment (FDI), entrepreneurial ecosystems, startups, Small and Medium-sized Enterprises (SMEs), funding, resources, market expansion, talent attraction, knowledge sharing.
    JEL: F21 F23 L26 L33 M13 O16 O33 O38
    Date: 2023–07–09
  11. By: Yeboah, Samuel; Gyan, Sylvester; James, Bright
    Abstract: This systematic review explores the complex dynamics between Foreign Direct Investment (FDI) and local entrepreneurial ecosystems, focusing on their impact on startups and Small and Medium-sized Enterprises (SMEs). FDI has emerged as a critical driver of economic development and innovation in an increasingly globalized world. While FDI offers numerous advantages, it also presents challenges, particularly for local startups. Positive effects of FDI include improved access to funding, enhanced resources, market expansion, talent attraction, and knowledge sharing. These benefits can boost the competitiveness and profitability of startups, enabling them to enter new markets and scale their operations. However, FDI can also have negative repercussions, such as increased competition, dependency risks, unequal partnerships, and potential loss of intellectual property. These challenges underscore the need for a nuanced approach to harness the benefits of FDI while mitigating its risks. To address these issues, strategies to maximize FDI's benefits for entrepreneurship are discussed. These strategies encompass creating supportive ecosystems, diversifying funding sources, promoting collaborative innovation, strengthening intellectual property protection, investing in education and skill development, facilitating cultural integration, and establishing startup incubation programs. Ultimately, achieving a harmonious balance between FDI and local entrepreneurship is essential for driving inclusive economic growth and sustainable innovation. This systematic review provides insights to guide policymakers, entrepreneurs, and investors in optimizing the advantages of FDI while proactively addressing its inherent challenges.
    Keywords: Foreign Direct Investment (FDI); Entrepreneurial Ecosystems; Local Startups; Small and Medium-sized Enterprises (SMEs); Economic Development; Innovation; Competition; Power Dynamics; Intellectual Property Protection; Technology Transfer
    JEL: D22 F21 F23 L25 L26 M13 M21 O31 O33 O34
    Date: 2023–06–15
  12. By: Steven Poelhekke (Vrije Universiteit Amsterdam); Benjamin Wache (CPB Netherlands)
    Abstract: Does venture capital (VC) investment yield economic growth? A large literature studies the effect of VC investments on firm-level activity, but its effects on economic growth are less well understood. We identify the effect of VC investment flows on destination county employment, wages, and establishment creation, using a novel instrument that captures the ‘social connectedness’ of counties to major sources of VC investment. Using detailed data on VC flows from investors to companies, we find a large positive impact of VC investment, suggesting that strong social connections to large venture capital hubs are an important contributor to regional economic growth.
    Keywords: Growth, venture capital, social connectedness
    JEL: R11 G24 G41
    Date: 2023–08–30

This nep-ent issue is ©2023 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.