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SBE Lect 4_ Part 4: Ch6 defining and measuring start ups (National rates…
SBE Lect 4_ Part 4: Ch6 defining and measuring start ups
National rates of formal and informal entrepreneurship
1.
GEM measures young business owners (individuals), not Young Firm Entrepreneurial Activity ◦ At minimum, you should correct for (average) team size
2.
New incorporated businesses in 1 year vs. the number of young business owners in 1 year
Young business owner defined as someone with a business younger than 3.5 years
(“double counting”)
Survival rates increase over time (many fail soon), so
adjustment needed
Lecture preparation: “Read section 5.2.1 of Thai & Turkina (2014) carefully, and try to find
at least two errors
in the calculation of the national rate of informal entrepreneurship” :
Example slide 21 “To illustrate with an example, Bolivia's total entrepreneurial activity (based on GEM data) as a percentage of its population is 39.4% whereas formal entrepreneurship (based on World Bank data) is only 6.2% of its population. Therefore, informal entrepreneurship constitutes 33.2% of this country's entrepreneurial activity. Both variables are based on 2009 data (the most recent and comprehensive data sets).” --->
Worldbank site: you can see that the new business density (new registration per 1,000 people ages 15-64) is 0.45 in Bolivia (2009)
--> If there are 0.45 new business per 1000 individuals, then there are
0.045 new businesses per 100 individuals!
remain critical!
Three types of economies, based on stages of economic development
1.Factor-driven economies
◦ Economic activity primarily based on the extraction of natural resources
2. Efficiency-driven economies
◦ Industrialization and economies of scale are major drives of economic development
3. Innovation-driven economies
◦ Expanding services sector, and increasing variety and knowledge intensity of the industrial sector
Relation between level of economic development and TEA
Reasons for finding this U-shape
Context: stages of economic development (Factor driven → efficiency driven → innovation-driven)
Scale economies (particularly important in efficiency-driven stage of economic
development)
Increase in economic development leads to higher increases of safe wages than entrepreneurial income increases
Sector structure (agriculture → manufacturing → services)
Notes: with an L-shaped it is not possible more info in book make a big deal about linear and quadratic relationships
see slides 20-22: Notes "is it U-shaped?" Negative relationship for poor positive relationship for richer countries; most people say the relationship is u-shaped
Assessing the shape of the relation
Let’s test a linear shape, a U-shape, and a L-shape
TEA = GDP + GDP2 + e
TEA = 1/GDP + e
TEA = GDP + e
Let’s see how well the models predict in terms of explained variance see slide 26-27
The effect of entrepreneurial activity on national economic growth
36 countries participating in GEM 2002
◦ Both developed and developing countries
What is the influence of entrepreneurship on national economic growth?
◦ Does this influence depend on the level of economic development?
The “direct effect” of new businesses on growth
Van Stel, Carree and Thurik (2005)