Macro-Level Determinants of Entrepreneurship and Endogeneity Bias – A Methodological Contribution
Abstract
The eclectic theory of entrepreneurship has identified several macro-determinants of national entrepreneurial activities. Taking advantage of the availability of new databases, several recent empirical studies have sought to test these determinants in multicountry studies using multivariate regression models. Due to the lack of consensus around their results, this paper posits that this empirical literature may be subject to endogeneity bias, which seriously threatens its accuracy, consistency, and reliability, as well as the effectiveness of the resulting management and policy recommendations. Consequently, we methodologically demonstrate why and how endogeneity occurs in these studies by analyzing their empirical and theoretical models. We also provide a step-by-step guide to help researchers understand how to detect and correct endogeneity using IV techniques applied to a panel data analysis of the macro-determinants of early-stage entrepreneurship in a sample of 48 countries between 2000 and 2019. A ‘toolkit’ of generic STATA software commands specifying the tests, methods, and assumptions performed in this analysis is included. In doing so, we aim to raise awareness of endogeneity bias among researchers and to empirically guide future studies in order to avoid its hazards. Finally, after correcting for endogeneity, our analysis identifies the protection of property rights, entrepreneurial culture, income, and economic development as the most consistent macro-determinants of early-stage entrepreneurship, providing important policy and business insights.
Downloads
References
Acs, Z. J. & Audretsch D. B. (2005). Entrepreneurship, innovation and technological change. Foundations and Trends in Entrepreneurship, 1(4), 149–195. doi: 10.1561/0300000004
Acs, Z. J., Autio, E. & Szerb, L. (2014). National systems of entrepreneurship: Measurement issues and policy implications. Research Policy, 43(3), 476–494. doi: 10.1016/j.respol.2013.08.016
Arellano, M. & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297. doi: 10.2307/2297968
Arellano, M. & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. doi: 10.1016/0304-4076(94)01642-D
Arenius, P. & Minniti, M. (2005). Perceptual variables and nascent entrepreneurship. Small Business Economics, 24(3), 233–247. doi: 10.1007/s11187-005-1984-x
Arin, K. P., Huang, V. Z., Minniti, M., Nandialath, A. M. et al. (2015). Revisiting the determinants of entrepreneurship: A Bayesian approach. Journal of Management, 41(2), 607–631. doi: 10.1177/0149206314558488
Audretsch, D. B. (2007). The entrepreneurial society. Oxford University Press. Retrieved from https://global.oup.com/academic/product/the-entrepreneurial-society-9780195183504?cc=fr&lang=en&
Audretsch, D. B. & Fritsch, M. (1994). The geography of firm births in Germany. Regional Studies, 28(4), 359–365. doi: 10.1080/00343409412331348326
Bain, J. S. (1956). Barriers to new competition. Harvard University Press.
Bellemare, M. F., Masaki, T. & Pepinsky, T. B. (2017). Lagged explanatory variables and the estimation of causal effect. The Journal of Politics, 79(3), 949–963. Retrieved from https://www.hup.harvard.edu/catalog.php?isbn=9780674188037
Berk, I., Kasman, A. & Kılınç, D. (2020). Towards a common renewable future: The system-GMM approach to assess the convergence in renewable energy consumption of EU countries. Energy Economics, 87, 103922. doi: 10.1016/j.eneco.2018.02.013
Bjørnskov, C. & Foss, N. J. (2008). Economic freedom and entrepreneurial activity: Some cross-country evidence. Public Choice, 134(3–4), 307–328. doi: 10.1007/s11127-007-9229-y
Bjørnskov, C. & Foss, N. J. (2016). Institutions, entrepreneurship, and economic growth: What do we know and what do we still need to know? Academy of Management Perspectives, 30(3), 292–315. doi: 10.5465/amp.2015.0135
Blanchflower, D. G. & Meyer, B. D. (1994). A longitudinal analysis of the young self-employed in Australia and the United States. Small Business Economics, 6(1), 1–19. doi: 10.1007/BF01066108
Blundell, R. & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. doi: 10.1016/S0304-4076(98)00009-8
Boissin, J. P., Chollet, B. & Emin, S. (2009). Les déterminants de l’intention de créer une entreprise chez les étudiants: un test empirique. M@n@gement, 12(1), 28–51. https://management-aims.com/index.php/mgmt/article/view/4099
Bosma, N., Hessels, J., Schutjens, V., Praag, V. et al. (2011). Entrepreneurship and role models. Tinbergen Institute Discussion, Paper no. 11-061/3. Retrieved from https://papers.tinbergen.nl/11061.pdf
Bowsher, C. G. (2002). On testing overidentifying restrictions in dynamic panel data models. Economics Letters, 77(2), 211–220. doi: 10.1016/S0165-1765(02)00130-1
Carree, M. A., Van Stel, A., Thurik, R. & Audretsch, D. B. (2007a). Does self-employment reduce unemployment? Entrepreneurship, Growth and Public Policy, 1(18), 1613–8333.
Carree, M., Van Stel, A., Thurik, R. & Wennekers, S. (2007b). The relationship between economic development and business ownership revisited. Entrepreneurship & Regional Development, 19(3), 281–291. doi: 10.1080/08985620701296318
Casson, M. (1995). Entrepreneurship and business culture. Edward Elgar Publishing. doi: 10.1016/s0024-6301%2897%2986609-5
Chowdhury, F., Audretsch, D. B. & Belitski, M. (2019). Institutions and entrepreneurship quality. Entrepreneurship Theory and Practice, 43(1), 51–81. doi: 10.1177%2F1042258718780431
Cieślik, J., Kaciak, E. & van Stel, A. (2018). Country-level determinants and consequences of overconfidence in the ambitious entrepreneurship segment. International Small Business Journal, 36(5), 473–499. doi: 10.1177%2F0266242617748201
Cullen, J. B., Johnson, J. L. & Parboteeah, K. P. (2014). National rates of opportunity entrepreneurship activity: Insights from institutional anomie theory. Entrepreneurship Theory and Practice, 38(4), 775–806. doi: 10.1111/etap.12018
Cumming, D. J. & Li, D. (2013). Public policy, entrepreneurship, and venture capital in the United States. Journal of Corporate Finance, 23, 345–367. doi: 10.1016/j.jcorpfin.2013.09.005
Dejardin, M. (2000). Entrepreneurship and economic growth: An obvious conjunction. Institute for Development Strategies. Retrieved from https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.197.3876&rep=rep1&type=pdf
Demil, B., Lecocq, X. & Warnier, V. (2018). ‘Business model thinking’, business ecosystems and platforms: The new perspective on the environment of the organization. M@n@gement, 21(4), 1213–1228. doi: 10.3917/mana.214.1213
Dvouletý, O. (2017). Determinants of Nordic entrepreneurship. Journal of Small Business and Enterprise Development, 24(1), 12–33. doi: 10.1108/JSBED-07-2016-0104
Dvouletý, O. (2018). How to analyse determinants of entrepreneurship and self-employment at the country level? A methodological contribution. Journal of Business Venturing Insights, 9, 92–99. doi: 10.1016/j.jbvi.2018.03.002
Edelman, L. & Yli–Renko, H. (2010). The impact of environment and entrepreneurial perceptions on venture-creation efforts: Bridging the discovery and creation views of entrepreneurship. Entrepreneurship Theory and Practice, 34(5), 833–856. doi: 10.1111/j.1540-6520.2010.00395.x
Evans, D. S. & Leighton, L. S. (1990). Small business formation by unemployed and employed workers. Small Business Economics, 2(4), 319–330. doi: 10.1007/BF00401628
Freytag, A. & Thurik, R. (2007). Entrepreneurship and its determinants in a cross-country setting. Journal of evolutionary Economics, 17(2), 117–131. doi: 10.1007/s00191-006-0044-2
Gaies, B., Kaabia, O., Ayadi, R., Guesmi, K. et al. (2019). Financial development and energy consumption: Is the MENA region different? Energy Policy, 135, 111000. doi: 10.1016/j.enpol.2019.111000
Gaies, B. & Nabi, M. S. (2019). Financial openness and growth in developing countries. Journal of Economic Integration, 34(3), 426–464. Retrieved from https://www.jstor.org/stable/26756452
Galindo, M. Á. & Méndez, M. T. (2014). Entrepreneurship, economic growth, and innovation: Are feedback effects at work? Journal of Business Research, 67(5), 825–829. https://doi.org/10.1016/j.jbusres.2013.11.052
Gaies, B. & Nabi, M. S. (2021). Banking crises and economic growth in developing countries: Why privileging foreign direct investment over external debt? Bulletin of Economic Research, 73(4), 736–761. https://doi.org/10.1111/boer.12271
Gaies, B., Najar, D., Maalaoui, A., Kraus, S. & El Tarabishy, A. (2021). Does financial development really spur nascent entrepreneurship in Europe? A panel data analysis. Journal of Small Business Management, 1–48. doi: 10.1080/00472778.2021.1896722
Granado-Peiró, N. & López-Gracia, J. (2017). Corporate governance and capital structure: A Spanish study. European Management Review, 14(1), 33–45. doi: 10.1111/emre.12088
Granstrand, O. & Alänge, S. (1995). The evolution of corporate entrepreneurship in Swedish industry – Was Schumpeter wrong? Journal of Evolutionary Economics, 5(2), 133–156. doi: 10.1007/BF01199854
Grilo, I. & Thurik, R. (2004). Determinants of entrepreneurship in Europe. ERIM Report Series Reference No. ERS-2004-106-ORG. Retrieved from https://ssrn.com/abstract=636815
Hall, J. C., Lacombe, D. J. & Pokharel, S. B. (2016). Freedom and entrepreneurship: A spatial econometric approach. Journal of Entrepreneurship and Public Policy, 5(3), 404–411. doi: 10.1108/JEPP-12-2015-0038
Hamilton, B. H. & Nickerson, J. A. (2003). Correcting for endogeneity in strategic management research. Strategic Organization, 1(1), 51–78. doi: 10.1177/1476127003001001218
Hansen, L. P. (1982). Large sample properties of generalized method of moments estimators. Econometrica: Journal of the Econometric Society, 1029–1054. doi: 10.2307/1912775
Hechavarría, D. M. & Ingram, A. E. (2019). Entrepreneurial ecosystem conditions and gendered national-level entrepreneurial activity: A 14-year panel study of GEM. Small Business Economics, 53(2), 431–458. doi: 10.1007/s11187-018-9994-7
Henrekson, M. & Sanandaji, T. (2011). Entrepreneurship and the theory of taxation. Small Business Economics, 37(2), 167–185. doi: 10.1007/s11187-009-9242-2
Highfield, R. & Smiley, R. (1987). New business starts and economic activity: An empirical investigation. International Journal of Industrial Organization, 5(1), 51–66. doi: 10.1016/0167-7187(87)90006-3
Holcombe, R. G. (1998). Entrepreneurship and economic growth. Quarterly Journal of Austrian Economics, 1(2), 45–62. doi: 10.1007/s12113-998-1008-1
Inekwe, J. N. (2020). Global financial networks and entrepreneurship. The World Economy, 44(5), 1261–1280. doi: 10.1111/twec.13056
Jovanovic, B. (1982). Selection and the evolution of Industry. Econometrica: Journal of the Econometric Society, 50(3), 649–670. doi: 10.2307/1912606
Klapper, L. F. & Love, I. (2010). The impact of business environment reforms on new firm registration. Policy Research Working Paper Series 5493. The World Bank. doi: 10.1596/1813-9450-5493
Ketokivi, M. & McIntosh, C. N. (2017). Addressing the endogeneity dilemma in operations management research: Theoretical, empirical, and pragmatic considerations. Journal of Operations Management, 52, 1–14. doi: 10.1016/j.jom.2017.05.001
Kibler, E., Kautonen, T. & Fink, M. (2014). Regional social legitimacy of entrepreneurship: Implications for entrepreneurial intention and start-up behaviour. Regional Studies, 48(6), 995–1015. doi: 10.1080/00343404.2013.851373
Kirchhoff, B. A., Newbert, S. L., Hasan, I. & Armington, C. (2007). The influence of university R&D expenditures on new business formations and employment growth. Entrepreneurship Theory and Practice, 31(4), 543–559. doi: 10.1111%2Fj.1540-6520.2007.00187.x
Kirzner, I. M. (1973). Entrepreneurship and competition. University of Chicago Press. Retrieved from https://www.scirp.org/(S(i43dyn45teexjx455qlt3d2q))/reference/ReferencesPapers.aspx?ReferenceID=1583665
Law, S. H., Kutan, A. M. & Naseem, N. A. M. (2018). The role of institutions in finance curse: Evidence from international data. Journal of Comparative Economics, 46(1), 174–191. doi: 10.1016/j.jce.2017.04.001
Mai, Y. & Gan, Z. (2007). Entrepreneurial opportunities, capacities and entrepreneurial environments. Evidence from Chinese GEM data, Chinese Management Studies, 1(4), 216–224. Retrieved from http://hdl.handle.net/10419/228732
Minniti, M. (2005). Entrepreneurship and network externalities. Journal of Economic Behavior & Organization, 57(1), 1–27. doi: 10.1016/j.jebo.2004.10.002
Muehlberger, U. (2007). Dependent self-employment: Workers on the border between employment and self-employment. Springer.
Naudé, W. (2011). Entrepreneurship and economic development. Palgrave Macmillan. doi: 10.1057/9780230295155
Pinget, A., Bocquet, R. & Mothe, C. (2015). Barriers to environmental innovation in SMEs: Empirical evidence from French firms. M@n@gement, 18(2), 132–155. doi: 10.3917/mana.182.0132
Powell, B. & Rodet, C. S. (2012). Praise and profits: Cultural and institutional determinants of entrepreneurship. Journal of Private Enterprise, 27(2), 19.
Redford, A. (2020). Property rights, entrepreneurship, and economic development. The Review of Austrian Economics, 33(1), 139–161. doi: 10.1007/s11138-019-00485-6
Roman, A., Bilan, I. & Ciumaș, C. (2018). What drives the creation of new businesses? A panel-data analysis for EU countries. Emerging Markets Finance and Trade, 54(3), 508–536. doi: 10.1080/1540496X.2017.1412304
Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. The Stata journal, 9(1), 86–136. doi: 10.1177/1536867X0900900106
Roodman, D. (2018). xtabond2: Stata module to extend xtabond dynamic panel data estimator. Boston College Department of Economics.
Rusu, V. D. & Roman, A. (2017). Entrepreneurial activity in the EU: An empirical evaluation of its determinants. Sustainability, 9(10), 1679. doi: 10.3390/su9101679
Sande, J. B. & Ghosh, M. (2018). Endogeneity in survey research. International Journal of Research in Marketing, 35(2), 185–204. doi: 10.1016/j.ijresmar.2018.01.005
Sarasvathy, S. (2014). The downside of entrepreneurial opportunities. M@n@gement, 17(4), 305–315. doi: 10.3917/mana.174.0305
Schumpeter, J. (1934). The theory of economic development. Harvard University Press.
Sobel, R. S., Clark, J. R. & Lee, D. R. (2007). Freedom, barriers to entry, entrepreneurship and economic progress. Austrian Review of Economics, 20(4), 221–236. doi: 10.1007/s11138-007-0023-3
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65–94. doi: 10.2307/1884513
Staiger, D. & Stock, J. H. (1997). Instrumental variables regression with weak instruments. Econometrica: Journal of the Econometric Society, 65(3), 557–586. doi: 10.2307/2171753
Thai, M. T. T. & Turkina, E. (2014). Macro-level determinants of formal entrepreneurship versus informal entrepreneurship. Journal of Business Venturing, 29(4), 490–510. doi: 10.1016/j.jbusvent.2013.07.005
Tomio, B. T. & Amal, M. (2015). Institutional distance and Brazilian outward foreign direct investment. M@n@gement, 18(1), 78–101. Retrieved from https://management-aims.com/index.php/mgmt/article/view/4003
Ullah, S., Akhtar, P. & Zaefarian, G. (2018). Dealing with endogeneity bias: The generalized method of moments (GMM) for panel data. Industrial Marketing Management, 71, 69–78. doi: 10.1016/j.indmarman.2017.11.010
Valdez, M. E. & Richardson, J. (2013). Institutional determinants of macro–level entrepreneurship. Entrepreneurship Theory and Practice, 37(5), 1149–1175. doi: 10.1111%2Fetap.12000
Verheul, I., Wennekers, S., Audretsch, D. & Thurik, R. (2002). An eclectic theory of entrepreneurship: Policies, institutions and culture. In D. Audretsch, R. Thurik, I. Verheul & S. Wennekers (Eds.), Entrepreneurship: Determinants and policy in a European-US comparison (pp. 11–81). Springer. doi: 10.1007/0-306-47556-1_2
Wennekers, A. R. M., Uhlaner, L. M. & Thurik, R. (2002). Entrepreneurship and its conditions: A macro- perspective. International Journal of Entrepreneurship Education, 1(1), 25–64. Retrieved from http://hdl.handle.net/1765/15876
Wennekers, S., Thurik, R., van Stel, A. & Noorderhaven, N. (2007). Uncertainty avoidance and the rate of business ownership across 21 OECD countries, 1976–2004. Journal of Evolutionary Economics, 17(2), 133–160. doi: 10.1007/s00191-006-0045-1
Wennekers, S., Van Stel, A., Carree, M. & Thurik, R. (2010). The relationship between entrepreneurship and economic development: Is it U-shaped? Foundations and Trends® in Entrepreneurship, 6(3), 167–237. doi: 10.1561/0300000023
Wennekers, S., Van Wennekers, A., Thurik, R. & Reynolds, P. (2005). Nascent entrepreneurship and the level of economic development. Small Business Economics, 24(3), 293–309. doi: 10.1007/s11187-005-1994-8
Windmeijer, F. (2005). A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics, 126(1), 25–51. doi: 10.1016/j.jeconom.2004.02.005
Windmeijer, F., Farbmacher, H., Davies, N. & Davey Smith, G. (2019). On the use of the lasso for instrumental variables estimation with some invalid instruments. Journal of the American Statistical Association, 114(527), 1339–1350. doi: 10.1080/01621459.2018.1498346
Wintoki, M. B., Linck, J. S. & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581–606. doi: 10.1016/j.jfineco.2012.03.005
Wooldridge, J. M. (2016). Introductory econometrics: A modern approach. Nelson Education. Retrieved from https://www.cengage.uk/shop/isbn/9781337558860
Zaefarian, G., Kadile, V., Henneberg, S. C. & Leischnig, A. (2017). Endogeneity bias in marketing research: Problem, causes and remedies. Industrial Marketing Management, 65, 39–46. doi: 10.1016/j.indmarman.2017.05.006
Copyright (c) 2022 Brahim Gaies, Adnane Maalaoui
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Authors retain copyright of their work, with first publication rights granted to the AIMS.