1. Entrepreneurship in the macro-economic context
Roy Thurik
Erasmus School of Economics and Montpellier Business School
IMES (Innovation, Management, Entrepreneurship and Sustainability) Conference, May 30, 2019, University of Economics, Prague

2. Economics of entrepreneurship
What is entrepreneurship?
Psychology v economics
Nascents v incumbents
Engagement levels
Orientation
Causes?
Empirics
Jack of all trades
Occupational choice
Consequences?
Effect measure
Remuneration
Persons
Firms
Industries
Economies

3. Economics of entrepreneurship
What is it?
Economics v psychology
Incumbents v nascents
Engagement levels
Entrepreneurial orientation
Causes?
Empirics
Occupational choice, jack of all trades
Biology
Consequences?
Effect measures: remuneration
New effect measures: health, happiness, satisfaction
Persons
Firms
Industries
Economies

4. Economics of entrepreneurship
What is it?
# firms
# nascents
Turbulence
Intrapreneurship
Causes?
Regulations - Micro reforms
Education
Culture
Consequences?
Growth
Recovery from recession
Persons
Firms
Industries
Economies

5. Economics of entrepreneurship
Persons
Firms
Industries
Economies
Interplay with level of economic development
Interplay with growth / unemployment
Interplay with the cycle

6. Total entrepreneurial activity and GDP/capita

7. Stylized fact
Business ownership
per workforce
per capita income

8. Stylized fact
Business ownership
per workforce
per capita income

9. Stylized fact
Business ownership
per workforce
per capita income

10. What will I do? Entrepreneurship and the cycle
Ph.D. Köllinger and A.R. Thurik (2012), Review of Economics and Statistics, 94(4),
Thurik, A.R. (2014), Entrepreneurship and the business cycle, IZA World of Labor, 90, (doi: /izawol.90).
Erken, H., P. Donselaar and A.R. Thurik (2018), Total factor productivity and the role of entrepreneurship, Journal of Technology Transfer, 23(6),
Thurik, A.R., M.A. Carree, A. van Stel and D.B. Audretsch (2008), Does self-employment reduce unemployment? Journal of Business Venturing, 23(6),
Cima, J., J. Costa, C. Pinto and T. Pinto (2017), The dynamics of self-employment and unemployment during the great recession, International Review of Entrepreneurship, 15(3),
Parker, S.C. (2018), The Economics of Entrepreneurship, 2nd edition, Cambridge University Press, Sections 3.3 and 6.5.

11. What do we want to know?
Is there a cyclical effect in entrepreneurship?
Is there co-variation between entrepreneurship and the business cycle?
Pro- or counter-cyclical?
Pre- or post-cyclical?
Can this co-variation be interpreted as causality?
What are the economic mechanisms?
What can policy do?

12. Would this make sense?

13. Practical background Banking crisis (cleaning up)
Global aspect (international coordination)
Keynesian remedies
Country budget crisis (monetary and fiscal issues)
Budget austerity (politics)
Schumpeterian remedies?
Micro reforms
Freeing up labor and product markets
H1: comes from an assumption of the models of B&G and C&F. The point of these papers was to argue that agency costs are counter-cyclical.
H2: Real business cycle model of Rampini has entrepreneurial activity as an endogenous variable. Extent of entrepreneurial activity depends on external productivity shocks (which are procyclical and increase the share of entrepreneurs) and agency costs (which are counter-cyclical and negative influences the availability of financing for entrepreneurs during recessions). Hence, Rampini concludes that entrepreneurship is pro-cyclical even if entrepreneurs have access to financial intermediaries and optimize their behavior over the cycle.

14. What does the literature say about entrepreneurial activity and the cycle?
Hypothesis 1: ‘Entrepreneurial activity is constant over the business cycle’
Bernanke and Gertler (AER, 1989)
Carlstrom and Fuerst (AER, 1997)
Hypothesis 2: ‘Entrepreneurship is pro-cyclical’
Rampini (JME, 2004)
Congregado, Golpe and Parker (IZA, 2009)
Golpe (Huelva, 2009)
No a priori
Frankish, Roberts, Storey (London, 2009)
Bonnet and Renou-Maissant (E&P, 2000)
H1: comes from an assumption of the models of B&G and C&F. The point of these papers was to argue that agency costs are counter-cyclical.
H2: Real business cycle model of Rampini has entrepreneurial activity as an endogenous variable. Extent of entrepreneurial activity depends on external productivity shocks (which are procyclical and increase the share of entrepreneurs) and agency costs (which are counter-cyclical and negative influences the availability of financing for entrepreneurs during recessions). Hence, Rampini concludes that entrepreneurship is pro-cyclical even if entrepreneurs have access to financial intermediaries and optimize their behavior over the cycle.

15. What does the literature say about entrepreneurial activity and the cycle?
Entrepreneurs create new firms displacing old ones
Entrepreneurs absorb risks
Entrepreneurship is a way out of unemployment
Entrepreneurship is a financial vehicle
Entrepreneurship as a cyclical indicator
H1: comes from an assumption of the models of B&G and C&F. The point of these papers was to argue that agency costs are counter-cyclical.
H2: Real business cycle model of Rampini has entrepreneurial activity as an endogenous variable. Extent of entrepreneurial activity depends on external productivity shocks (which are procyclical and increase the share of entrepreneurs) and agency costs (which are counter-cyclical and negative influences the availability of financing for entrepreneurs during recessions). Hence, Rampini concludes that entrepreneurship is pro-cyclical even if entrepreneurs have access to financial intermediaries and optimize their behavior over the cycle.

16. Data 22 OECD countries, annual data for 1972-2007 Sources: Variables:
Compendia (business ownership rate)
See van Stel (IEMJ, 2005)
OECD (GDP and unemployment rate)
Variables:
Business ownership rate
Self-employed and incorporate business owners
In % of labor force (employed + unemployed)
Harmonized across countries and over time
GDP in national currencies and constant prices (2000)
Standardized unemployment rates
GEM data : robustness check

17. Decomposition of trend and cycle
Business cycle is defined as GDP deviations from long term growth trend
Decomposition using the Hodrick-Prescott filter (JMCB, 1997)
with a smoothing parameter of 6.25 for annual data (Ravn and Uhlig, RES, 2002)
Business ownership cycle ……idem
Unemployment cycle …..idem
HP filter is the standard method for de-trending macroeconomic data.

18. Average deviations from trend across 22 countries
Entrepreneurship was “leading the way” out of the oil crisis recession ( ).
Also, it was leading the long cyclical upturn in the mid 1990’s that culminated in the burst of the burst of the high-tech bubble in 2000
Finally, it also led the recovery from the recession after 2001.

19. Average deviations from trend across 22 countries
Entrepreneurship was “leading the way” out of the oil crisis recession ( ).
Also, it was leading the long cyclical upturn in the mid 1990’s that culminated in the burst of the burst of the high-tech bubble in 2000
Finally, it also led the recovery from the recession after 2001.

20. Two relationships ?
GDPt Et ?
GDPt Et

21. Two relationships
<0
GDPt
Et+1,2
>0
GDPt+1,2 Et

22. Two relationships GDPt Et+1,2 GDPt+1,2 Et <0 >0
Granger causality test business-ownership cycle  GDP cycle: significant >95%
Granger causality test GDP cycle  business ownership cycle: significant >99%
(based on VAR including cycles of business ownership, GDP and unemployment)
 Entrepreneurship is an early indicator of the cycle in most countries and years

23. Playing with lags Et
Et+n
GDPt =0
GDPt+n

24. Playing with lags Et
Et+n
GDPt Et
Et+n
GDPt
>0
<0
GDPt+n
GDPt+n

25. Just playing with data but …
There is much evidence that entrepreneurship leads to economic growth
spillovers and innovation
competition
newness through turbulence
variation and learning
share of self-employed
Entrepreneurs during the boom
‘what is high must come down’
Opportunity costs of entrepreneurship
Entrepreneurs during the recession
Opportunity costs and prices of production factors are low
Low risk awareness
No new hardware; no sunk costs
Incumbents are busy downsizing

26. Conclusion 1
Entrepreneurship leads the way out of recessions in most cases
Rejects earlier theoretical hypotheses
Using two indicators and large data sets
New empirical finding
Remaining heterogeneity across countries and time
Why Rampini (2004) doesn’t hold
Some agents are risk seeking during recessions
Entrepreneurship is a career choice that doesn’t pay
Overconfidence leads to an information structure where lenders may be better informed (≠ principle agent structure)

27. Conclusion 2
Policies for encouraging entrepreneurship during the crisis
Do not raise unemployment benefits
Koellinger and Minniti (EL, 2009)
Bureaucracy and market entry regulations
Grilo and Thurik (ICC, 2008)
Van Stel et al. (SBE, 2007)
Financial support (e.g. tax based venture capital funds)
Jobbers, freelancers, etc
Patents and students
Governments are not alone

28. Conclusion 3 Three links between entrepreneurship and the economy:
Explanations of economic growth
Keynesian, Romerian and Schumpeterian
Entrepreneurial economy
Audretsch and Thurik (ICC, 2001)
Entrepreneurship and the cycle
We need integrated models!

29. Conclusion 3 Is the last ‘great recession’ different?
Country heterogeneity and world cycles
Entrepreneurship has many faces!
Data and analyses are inclusive policy effects
Which policy measures influence entrepreneurship?
Is there a cyclical effect of these measures?

30. Entrepreneurship in the macro-economic context
Roy Thurik
Erasmus School of Economics and Montpellier Business School
IMES (Innovation, Management, Entrepreneurship and Sustainability) Conference, May 30, 2019, University of Economics, Prague