The use of GEM data for analyzing the relationship The use of GEM data for analyzing the relationship

between entrepreneurship and economic growthbetween entrepreneurship and economic growth

Jolanda Hessels

EIM and Erasmus School of Economics

July 6, 2010

Organizational backgroundOrganizational background

EIM: Economic research institute

Research program on SMEs and entrepreneurship, www.entrepreneurship-sme.eu

Global Entrepreneurship Monitor (GEM)

Erasmus School of Economics: Department of Applied Economics

Research group “Organization, Entrepreneurship and Strategy”

This presentationThis presentation

Discuss process of developing a research paper using GEM data

Example of GEM-based research paper: Hessels, J. & van Stel, A. 2010. Entrepreneurship,

export orientation and economic growth, Small Business Economics, forthcoming.

Set up of a research paperSet up of a research paper

Introduction Literature Data Method Results Discussion and conclusions Implications

IntroductionIntroduction

Motivation Research questions Approach

IntroductionIntroduction

Motivation: Potential importance of entrepreneurship and export

orientation to economic growth

Contribute to different types of literature

Research questions: Does entrepreneurship contribute to economic growth?

Is there an additional effect for export orientation?

Is the effect different for higher versus lower income countries?

Approach: literature study and empirical analysis

LiteratureLiterature

Discuss relevant previous studies Based on literature it is possible to:

Determine contribution

Develop hypotheses

Literature: entrepreneurshipLiterature: entrepreneurship

Different definitions: Occupational notion

Behavioral notion

Accepted measures: dynamic, e.g. nascent entrepreneurship, young

business ownership (GEM)

static, e.g. business ownership rate (COMPENDIA)

Literature: entrepreneurshipLiterature: entrepreneurship

Entrepreneurship and economic growth: Endogenous growth theory

Conceptual arguments that entrepreneurship leads through growth through: Diversity Competition Knowledge spillovers

Empirical evidence

Shift from managed to entrepreneurial economy

Literature: export orientationLiterature: export orientation

Increasing number of start-ups focus on international markets

Export most common international activity for start-ups

Export as type of entrepreneurial behavior

Literature: export orientationLiterature: export orientation

Export orientation and economic growth: Importance of export for firms/national economies

Characteristics of early stage exporters: Unique resources Learning advantage of newnessIncreased diversity, competition and knowledge spillovers

especially in higher-income countries?

Literature: overviewLiterature: overview

Literature on export and economic growth:

limited attention for role of start-ups Literature on entrepreneurship and economic

growth:

limited insight into role of export orientation and into lower income countries

Literature on new venture internationalization and growth:

limited insight into macro-economic performance implications

Literature: contributionLiterature: contribution

Relationship between entrepreneurship and economic growth taking into account… … export orientation

… different groups of countries along their level of economic development

Macro-level analysis: incorporate direct and indirect effects

Literature: hypothesesLiterature: hypotheses

Three hypotheses: Hypothesis 1: Positive relationship early-stage

entrepreneurship and economic growth

Hypothesis 2: Positive relationship between early-stage entrepreneurship and economic growth more pronounced for export-oriented entrepreneurship

Hypothesis 3: Positive relationship of export-oriented entrepreneurship with economic growth more pronounced in higher-income countries

DataData

Determine: variables needed

availability of data

level of analysis

time frame

Data: overviewData: overview National level Data on entrepreneurship, export orientation and

economic growth Other variables that explain economic growth Dataset constructed from various sources Export orientation data only available since 2002

Data: dependent variableData: dependent variable

Economic Growth Growth of GDP

(World Economic Outlook Database, IMF)

4 year average

Data: independent variablesData: independent variables

Entrepreneurship: TEA: Total early-stage Entrepreneurial Activity

(GEM)

Export orientation: Export orientation (>25 % foreign customers

(within TEA))

(GEM)

Data: control variablesData: control variables

Per Capita Income, GDPC (World Economic Outlook Database, IMF)

Growth Competitiveness Index, GCI (GCR, World Economic Forum)

Lagged GDP growth

(World Economic Outlook Database, IMF)

MethodMethod

Select appropriate method and set up based on: Research questions/hypotheses

Nature of data/variables

Determine estimation sample Take account of endogeneity

Method: set up and sampleMethod: set up and sample

Method and set up: Regression analysis (OLS): different models to test

the different hypotheses

Year dummies, no country dummies

Estimation sample: 34 countries 2002-2005

80 observations, unbalanced panel

Method: endogeneityMethod: endogeneity

Endogeneity/reversed causality: All independent variables included with a time lag

A lagged dependent variable included on the right hand side

Robustness check: fitted values, based on DeClercq, Hessels and Van Stel (2008)

Method: equationMethod: equation

∆GDPi(t t-3) = a + b1 TEA richi,t-3 +

c1 TEA poori,t-3 +

b2 Export richi,t-3 +

c2 Export poori,t-3 +

d log(GDPCi,t-3) +

e GCIi,t-3 +

ƒ ∆GDPi(t-4 t-7) + εit

ResultsResults

Look at descriptives first (means, correlations etc.)

Focus on main findings

Results: descriptivesResults: descriptivesTable 1: Descriptives ∆GDP TEA Export oriented

new ventures log(GDPC) GCI

Higher income countries (N=55) Mean 3.2 6.6

18.3 10.2 5.2

Standard deviation

1.5 3.2 8.2 0.2 0.4

Minimum

0.4 1.5 0.0 9.5 4.3

Maximum

7.2 14.5 43.2 10.7 6.0

Lower income countries (N=25) Mean 5.9 12.2

10.0 8.9 4.0

Standard deviation

2.5 6.1 8.6 0.5 0.4

Minimum

2.3 2.5 1.0 7.4 3.2

Maximum

10.5 27.3 32.5 9.4 4.9

Notes: The descriptive statistics refer to the model variables from Equation (1), hence ∆GDP is an average over years t to t-3 while all other variables are three year lagged. The descriptives refer to the estimation sample 2005-2008.

Results: controls, independentsResults: controls, independentsTable 2: Explaining economic growth from TEA and export orientation (N=80) TEA

Model 1 Model 2

Constant

22.0 ** (8.8)

17.0 ** (6.2)

TEA

0.14 ** (4.8)

Exportoriented new ventures 0.048 * (2.2)

log (GDPC)

-1.6 ** (4.5)

-1.3 ** (4.1)

GCI

-0.55 (1.3)

-0.57 (1.7)

lagged gdp growth

0.31 ** (3.3)

0.35 ** (4.2)

Loglikelihood -141.0 -132.3 R2 0.566 0.652 adjusted R2 0.530 0.613

Absolute heteroskedasticity-consistent t-values are between brackets. Year dummies included but not reported. * Significant at a 0.05 level. ** Significant at a 0.01 level

Results: higher/lower incomeResults: higher/lower incomeTable 3: Explaining economic growth from TEA and export orientation (N=80) TEA

Model 3

Constant

19.3 ** (4.4)

TEA rich countries

0.12 * (2.3)

TEA poor countries

0.15 ** (3.8)

Export oriented new ventures, rich countries 0.066 ** (2.7)

Export oriented new ventures, poor countries 0.008 (0.3)

log (GDPC)

-1.5 ** (3.4)

GCI

-0.56 (1.7)

lagged gdp growth

0.33 ** (3.3)

Loglikelihood -130.5 R2 0.668 adjusted R2 0.619

Absolute heteroskedasticity-consistent t-values are between brackets. Year dummies included but not reported. * Significant at a 0.05 level. ** Significant at a 0.01 level

Results: robustness checkResults: robustness checkTable 4: Explaining economic growth from TEA and export orientation (N=80) TEA

Model 4 Model 5

Constant

18.2 ** (6.6)

20.4 ** (4.9)

TEA

0.17 ** (5.4)

TEA rich countries

0.15 ** (2.9)

TEA poor countries

0.17 ** (4.6)

FIT export oriented new ventures

0.11 ** (4.2)

FIT export oriented new ventures, rich countries

0.12 ** (4.5)

FIT export oriented new ventures, poor countries

0.073 (1.8)

log (GDPC)

-1.5 ** (4.8)

-1.7 ** (3.9)

GCI

-0.61 * (2.1)

-0.66 * (2.5)

lagged gdp growth

0.37 ** (5.0)

0.34 ** (4.0)

Loglikelihood -123.4 -122.2 R2 0.722 0.731 adjusted R2 0.691 0.692

Absolute heteroskedasticity-consistent t-values are between brackets. Year dummies included but not reported. * Significant at a 0.05 level. ** Significant at a 0.01 level

Conclusion and discussionConclusion and discussion

Discuss main findings in light of previous literature

Provide rationale for counterintuitive/not readily explained results

Conclusion and discussionConclusion and discussion

Positive impact of entrepreneurship in general Export orientation makes a significant

additional contribution Difference between higher- and lower-income

countries

ImplicationsImplications

What are the implications of the findings for e.g. managers, policy makers?

What are suggestions for further research?

Policy implicationsPolicy implications

Stimulate strong export ambitions in higher income countries: Transition of moderate export to high export

Growth possibilities and ambition as a selection criterion in export promotion programs

Future researchFuture research Other aspects of entrepreneurial behavior Other measures of national (economic)

performance Relation entrepreneurship with economic

cycle, unemployment, duration of recessions

The use of GEM data for analyzing the relationship The use of GEM data for analyzing the relationship

between entrepreneurship and economic growthbetween entrepreneurship and economic growth

Jolanda Hessels

EIM and Erasmus School of Economics

July 6, 2010