The use of GEM data for analyzing the relationship between entrepreneurship and economic growth Jolanda Hessels EIM and Erasmus School of Economics July 6, 2010

Organizational background  EIM:  Economic research institute  Research program on SMEs and entrepreneurship,  Global Entrepreneurship Monitor (GEM)  Erasmus School of Economics:  Department of Applied Economics  Research group “Organization, Entrepreneurship and Strategy”

This presentation  Discuss process of developing a research paper using GEM data  Example of GEM-based research paper:  Hessels, J. & van Stel, A Entrepreneurship, export orientation and economic growth, Small Business Economics, forthcoming.

Set up of a research paper  Introduction  Literature  Data  Method  Results  Discussion and conclusions  Implications

Introduction  Motivation  Research questions  Approach

Introduction  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

Literature  Discuss relevant previous studies  Based on literature it is possible to:  Determine contribution  Develop hypotheses

Literature: 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: 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 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 orientation  Export orientation and economic growth:  Importance of export for firms/national economies  Characteristics of early stage exporters:  Unique resources  Learning advantage of newness  Increased diversity, competition and knowledge spillovers especially in higher-income countries?

Literature: 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: 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: 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

Data  Determine:  variables needed  availability of data  level of analysis  time frame

Data: 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 variable  Economic Growth  Growth of GDP (World Economic Outlook Database, IMF)  4 year average

Data: independent variables  Entrepreneurship:  TEA: Total early-stage Entrepreneurial Activity (GEM)  Export orientation:  Export orientation (>25 % foreign customers (within TEA)) (GEM)

Data: 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)

Method  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 sample  Method and set up:  Regression analysis (OLS): different models to test the different hypotheses  Year dummies, no country dummies  Estimation sample:  34 countries  80 observations, unbalanced panel

Method: 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: 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

Results  Look at descriptives first (means, correlations etc.)  Focus on main findings

Results: descriptives

Results: controls, independents

Results: higher/lower income

Results: robustness check

Conclusion and discussion  Discuss main findings in light of previous literature  Provide rationale for counterintuitive/not readily explained results

Conclusion and discussion  Positive impact of entrepreneurship in general  Export orientation makes a significant additional contribution  Difference between higher- and lower-income countries

Implications  What are the implications of the findings for e.g. managers, policy makers?  What are suggestions for further research?

Policy 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 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 between entrepreneurship and economic growth Jolanda Hessels EIM and Erasmus School of Economics July 6, 2010