An Analysis of Entrepreneurship Motivation Across Countries
What motivates individuals in different countries towards entrepreneurship? Business decisions can be driven by either necessity or opportunity entrepreneurship. As defined by the World Bank, necessity entrepreneurship occurs when the individual has no other option for income whereas opportunity entrepreneurship occurs when the individuals sees potential in the market.
Robert W. Fairlie and Frank M. Fossen look at the differences between necessity and opportunity entrepreneurship in relation to business creation. In their writing they define necessity entrepreneurship as counter-cyclical, moving against the business cycle, and opportunity entrepreneurship as pro-cyclical, moving with the ups and downs of the business cycle. If opportunity entrepreneurship increases with improving market conditions it may be more prominent in more stable, higher income economies.
This research attempts to answer the questions:
- Which form of entrepreneurship is more prominent across world markets?
- Would more developed countries experience higher levels of opportunity entrepreneurship than lesser developed countries?
- Would lesser developed nations see higher levels of necessary entrepreneurship?
H0: Higher income level countries do not experience higher levels of opportunity driven entrepreneurship and lower levels of necessity driven entrepreneurship then lesser developed countries.
H1: Higher income level countries experience higher levels of opportunity driven entrepreneurship and lower levels of necessity driven entrepreneurship then lesser developed countries.
Linear regression modeling in STATA was used to look at the significance of chosen variables when explaining country entrepreneurship. By obtaining data entrepreneurship entries and the motivation behind each entry, we can determine what drives start-ups in developed nations across the world.
The World Bank Global Entrepreneurship Monitor provides data on countries’ entrepreneurial levels including indicators of these different types of entrepreneurship through survey collection. This research considers Total early-stage Entrepreneurial Activity (TEA) as the depend variable. It is dependent on Motivational Index, perceived opportunities, perceived capabilities and country income level with government support and policies and taxes being held constant.
The variables as defined by the GEM database are as follows:
- Total early-stage Entrepreneurial Activity (TEA): Percentage of 18-64 population who are either a nascent entrepreneur or owner-manager of a new business
- Motivational Index: Percentage of those involved in TEA that are improvement-driven opportunity motivated, divided by the percentage of TEA that is necessity-motivated
- Perceived opportunities: Percentage of 18-64 population who see good opportunities to start a firm in the area where they live
- Perceived capabilities: Percentage of 18-64 population who believe they have the required skills and knowledge to start a business
- Governmental support and policies: The extent to which public policies support entrepreneurship
- Taxes and bureaucracy: The extent to which public policies support entrepreneurship – taxes or regulations are either size-neutral or encourage new and SMEs
Country Income level is defined by the world bank as High Income, Upper Middle Income or Lower Middle Income. This variable was represented as a dummy variable with Middle Income considered 0 and High Income considered 1. 59 Countries were observed.
With about 58% of the change in TEA being explained by these variables’ conclusions are still a work in progress. The regression shows that as the ratio of opportunity motivated entrepreneurs to necessity motivated entrepreneurs decreases by .29 TEA increases by 1 percent. The presence of High Income in a country, however, increases the TEA.
In this research I hope to increase both the dataset and variety of income level countries measured. The countries available in the database were disproportionately high income. Additionally, the prior logging of variables as a percent by GEM make the results harder to interrupt. There may be a more appropriate measure of motivation rather than the given ratio data.
This summer has been a great experience learning further about both entrepreneurial tendencies and the basics of conducting research. I have learned that the initial idea or question for research is very versatile and can change rapidly through-out the beginning of the process based on prior literature and data collection. The questions I ended up testing also became more specific along the process.
Specifically, data collection across countries is challenging with only a limited number of 195 countries observe. As in prior research only about 60 countries had the necessary data available. Additionally, Necessity and Opportunity entrepreneurship are not widely addressed across databases. This made the available format of data (logged out of 100) harder to manipulate for these testing purposes. It was easier, however, to have majority of data from one source and already be in the same format and observation pool.
In the future, to better these results, a time series observation may fare better to obtain more observations. This will not improve the variety of countries, but it may improve the variety of conditions faced. Additional constant variables could also be introduced.