DETERMINANTS OF IMPROVEMENT-DRIVEN OPPORTUNITY ENTREPRENEURSHIP: CROSS-REGIONAL ANALYSIS
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Introduction 6
Chapter 1. Theoretical Background of Entrepreneurship and its determinants 9
Definition of entrepreneurship 9
Theories of entrepreneurship 11
The role of entrepreneurship in economic growth 13
Empirical studies on the factors of entrepreneurship 16
Regional studies of entrepreneurship determinants 20
Research gap definition and research goal statement 22
Hypotheses statement 23
Chapter 2. Empirical study on the determinants of improvement-driven opportunity
entrepreneurship 32
Methodology of the empirical research 32
Data analysis 35
Chapter 3. Discussion and systematization of the results 41
Discussion of the results of empirical study 41
Aggregate determinants for groups of countries 54
Policy and managerial applications 57
Limitations of the study 59
Conclusion 61
List of References 63
Appendices 74
Chapter 1. Theoretical Background of Entrepreneurship and its determinants 9
Definition of entrepreneurship 9
Theories of entrepreneurship 11
The role of entrepreneurship in economic growth 13
Empirical studies on the factors of entrepreneurship 16
Regional studies of entrepreneurship determinants 20
Research gap definition and research goal statement 22
Hypotheses statement 23
Chapter 2. Empirical study on the determinants of improvement-driven opportunity
entrepreneurship 32
Methodology of the empirical research 32
Data analysis 35
Chapter 3. Discussion and systematization of the results 41
Discussion of the results of empirical study 41
Aggregate determinants for groups of countries 54
Policy and managerial applications 57
Limitations of the study 59
Conclusion 61
List of References 63
Appendices 74
Entrepreneurship is widely discussed and studied area of scientific research nowadays. The relevance of the research in this field is associated with the connection between entrepreneurship and economic growth (Acs et al., 2012; Yu et al., 2016). The factors which determine entrepreneurship are accessed to determine the sensitivity of entrepreneurship to them and indirectly affect it.
If entrepreneurship is discussed out of the field of classical economic theory which treats it as one of factors of production (Marshall, 1890), usually it is referred as a set of personal characteristics and features of a man or woman which allow them to “develop, organize and manage a business venture along with any of its risks in order to make a profit” (Business Dictionary, 2018). However, those characteristics are not the only ones which determine the decision to start own business: the decision of starting entrepreneurship is a result of the aggregation of external and internal factors (Gartner, 1988; Cope, 2003; Ajayi-Obe, 2007). This research paper is focused on external factors.
Entrepreneurship is vitally important and valuable element of the modern world, as it is the crucial driver of economic development (Schumpeter, 1934; Toma et al., 2014). Scientists argue about the nature of the relationship between entrepreneurship and economic development and regarding the direction of the causality effect between them (Smith, 1776; Drucker, 1985; Gutterman, 2012; Toma et al., 2014).
Among the variety of classifications of entrepreneurship, motivation to start a business as the diversifying mechanism is exploited in this paper. This classification was introduced and employed by Reynolds et al. (1999). Motivation to start an enterprise is either opportunity (including both independence or increase income motives) or necessity-
motivated entrepreneurship. Opportunity entrepreneurs start a business because they believe that in current social/economic/cultural/institutional circumstances it is perspective and profitable. Improvement-driven opportunity entrepreneurs are who indicate that they are motivated by an idea of a business, not independence or income needs. Necessity-motivated entrepreneurs are those entrepreneurs who start a business because they are not able to find any job and earn money in any other activity; entrepreneurship is the only and necessary option for them.
Some researchers suppose that only opportunity-driven entrepreneurship is associated with economic development, as it stimulates economic growth, while necessity-driven entrepreneurship has no impact on economic growth (Acs et al., 2008). Following this theory, this research is focused on determinants of improvement-driven opportunity entrepreneurship.
There is a variety of research which is focused on determination of factors which affect entrepreneurship of different types in particular locations, countries, regions (groups of countries) and globally. The focus of the research is diverse and covers the broad set of factors which affect entrepreneurship. For instance, determinants of entrepreneurship on a global scale are widely studied (Rusu and Roman, 2016; Van Roy and Nepelski, 2017), while determinants of entrepreneurship in Asian regions are not deeply examined (Pihno et al., 2017), as well as in Africa (Youssef et al., 2017), comparing to the research focused on Latin America (Aparicio et al., 2016; Tabares, 2017) and Europe (Van Roy and Nepelski, 2017; Dilli and Westerhuis, 2018). Additionally, the factors of entrepreneurship vary for developed and developing countries (Schott and Jensen, 2008; Vivarelli, 2013).
Therefore, the goal of this paper is to explore determinants affecting improvement-driven opportunity entrepreneurship in different regional groups of countries.
To achieve this goal several objectives are stated. Firstly, the theoretical objectives are: identify the scope of definitions of entrepreneurship and determine to one to apply in the research; then, study the theories of entrepreneurship to focus on the nature of entrepreneurship and determinants of it. The next objective is to determine the topicality of the paper through the review of the connection between entrepreneurship and economic growth. After it, observe the recent studies on the factor of entrepreneurship on the global and regional level to directly identify and prove the existence of relevant research gap.
Secondly, methodological objectives are: identify the variables and the theoretical references for them, develop statistical research design and conduct it. Empirical objectives are the key ones and include the discussion of the results of the study. Following the next objective, systematization of the results should be performed. The final objective, to achieve the goal stated, is to formulate theoretical and practical implications.
The object of the paper is improvement-driven opportunity entrepreneurship in different countries and regions. The subject of this study is the list of determinants which affect the entrepreneurship.
To fulfill the goal and objectives stated above, this research is structured in the following way. Literature is reviewed in the first chapter of the paper in order to determine the definition of entrepreneurship, the theoretical basis of entrepreneurship, analyze and summarize the findings of research in the field, define research gap and formulate hypotheses. The second chapter covers the methodology of the empirical research and provides the review of data processing and the results of quantitative analysis. The third chapter is devoted to discussion of the key findings and explanation of the results, policy and managerial applications of the research.
If entrepreneurship is discussed out of the field of classical economic theory which treats it as one of factors of production (Marshall, 1890), usually it is referred as a set of personal characteristics and features of a man or woman which allow them to “develop, organize and manage a business venture along with any of its risks in order to make a profit” (Business Dictionary, 2018). However, those characteristics are not the only ones which determine the decision to start own business: the decision of starting entrepreneurship is a result of the aggregation of external and internal factors (Gartner, 1988; Cope, 2003; Ajayi-Obe, 2007). This research paper is focused on external factors.
Entrepreneurship is vitally important and valuable element of the modern world, as it is the crucial driver of economic development (Schumpeter, 1934; Toma et al., 2014). Scientists argue about the nature of the relationship between entrepreneurship and economic development and regarding the direction of the causality effect between them (Smith, 1776; Drucker, 1985; Gutterman, 2012; Toma et al., 2014).
Among the variety of classifications of entrepreneurship, motivation to start a business as the diversifying mechanism is exploited in this paper. This classification was introduced and employed by Reynolds et al. (1999). Motivation to start an enterprise is either opportunity (including both independence or increase income motives) or necessity-
motivated entrepreneurship. Opportunity entrepreneurs start a business because they believe that in current social/economic/cultural/institutional circumstances it is perspective and profitable. Improvement-driven opportunity entrepreneurs are who indicate that they are motivated by an idea of a business, not independence or income needs. Necessity-motivated entrepreneurs are those entrepreneurs who start a business because they are not able to find any job and earn money in any other activity; entrepreneurship is the only and necessary option for them.
Some researchers suppose that only opportunity-driven entrepreneurship is associated with economic development, as it stimulates economic growth, while necessity-driven entrepreneurship has no impact on economic growth (Acs et al., 2008). Following this theory, this research is focused on determinants of improvement-driven opportunity entrepreneurship.
There is a variety of research which is focused on determination of factors which affect entrepreneurship of different types in particular locations, countries, regions (groups of countries) and globally. The focus of the research is diverse and covers the broad set of factors which affect entrepreneurship. For instance, determinants of entrepreneurship on a global scale are widely studied (Rusu and Roman, 2016; Van Roy and Nepelski, 2017), while determinants of entrepreneurship in Asian regions are not deeply examined (Pihno et al., 2017), as well as in Africa (Youssef et al., 2017), comparing to the research focused on Latin America (Aparicio et al., 2016; Tabares, 2017) and Europe (Van Roy and Nepelski, 2017; Dilli and Westerhuis, 2018). Additionally, the factors of entrepreneurship vary for developed and developing countries (Schott and Jensen, 2008; Vivarelli, 2013).
Therefore, the goal of this paper is to explore determinants affecting improvement-driven opportunity entrepreneurship in different regional groups of countries.
To achieve this goal several objectives are stated. Firstly, the theoretical objectives are: identify the scope of definitions of entrepreneurship and determine to one to apply in the research; then, study the theories of entrepreneurship to focus on the nature of entrepreneurship and determinants of it. The next objective is to determine the topicality of the paper through the review of the connection between entrepreneurship and economic growth. After it, observe the recent studies on the factor of entrepreneurship on the global and regional level to directly identify and prove the existence of relevant research gap.
Secondly, methodological objectives are: identify the variables and the theoretical references for them, develop statistical research design and conduct it. Empirical objectives are the key ones and include the discussion of the results of the study. Following the next objective, systematization of the results should be performed. The final objective, to achieve the goal stated, is to formulate theoretical and practical implications.
The object of the paper is improvement-driven opportunity entrepreneurship in different countries and regions. The subject of this study is the list of determinants which affect the entrepreneurship.
To fulfill the goal and objectives stated above, this research is structured in the following way. Literature is reviewed in the first chapter of the paper in order to determine the definition of entrepreneurship, the theoretical basis of entrepreneurship, analyze and summarize the findings of research in the field, define research gap and formulate hypotheses. The second chapter covers the methodology of the empirical research and provides the review of data processing and the results of quantitative analysis. The third chapter is devoted to discussion of the key findings and explanation of the results, policy and managerial applications of the research.
Entrepreneurship is widely studied in the field of science. It is generally associated with the positive effect of entrepreneurship over economic growth. The goal of this paper was to identify the determinants of improvement-driven opportunity entrepreneurship in different regional groups: Europe, Northern America and Australia (treated as one group), Latin America, Africa and Asia.
Literature review provided in Chapter 1 helps to identify the position of entrepreneurship in modern science. There are different approaches regarding entrepreneurship definition which may include only basic economic function or even the personal characteristics of an entrepreneur. This research follows the definition, according to which entrepreneur is a person who starts a business of any format. At the same time, the focus of the paper is on a narrow group of entrepreneurs, who are motivated to start a business by improvement opportunities.
The review of the literature on relationship of economic growth and entrepreneurship helped to identify the empirical evidence that the relationship between entrepreneurship and economic growth varies for different types of entrepreneurship: opportunity entrepreneurship is positively associated, while necessity entrepreneurship - neutrally (Acs et al., 2008).
The analysis of articles on the factors of entrepreneurs (global and regional) aimed to assess the variables and databases from which they are obtained. It encouraged to state the hypothesis that various factors affect entrepreneurship in regions of different development level differently. Hypotheses were stated for independent variables property rights and legal system, infrastructure, higher education and training, labor market, financial market, business sophistication and innovation regarding their effect on dependent variable improvement-driven opportunity entrepreneurship in Europe, Northern America and Australia, Latin America, Africa and Asia.
The methodology of the research is described in Chapter 2. It includes the description of databases, variables, samples, statistics. Regression models supported the proposition that a set of significant determinants is various for each regional group. Several hypotheses were omitted due to insignificance of beta coefficients of determinants, the majority of the hypotheses were supported. A few hypotheses were rejected: for example, opposite to expectations, property rights and legal system determinant is negatively associated with the dependent variable in Europe, Northern America and Australia.
In Chapter 3 detailed discussion of the results of the regression analysis was performed. Intuitive explanation applying different theoretical approaches solved the inconsistency of hypotheses and results. Some articles which were covered in literature review supported the results obtained. Moreover, the discussion included the review of reasons why the sets of determinants of entrepreneurship differ between groups of countries. The systematization of the results and classification of the determinants was proposed as a theoretical contribution of the paper.
The factors of improvement-driven opportunity entrepreneurship vary for different regions. In Europe, Northern America and Australia the entrepreneurship is sensitive to property rights and legal system, infrastructure, financial market, business sophistication, and innovation. Latin America is sensitive to infrastructure, higher education and training and financial market. African countries are affected by property rights and legal system and labor market. Asian entrepreneurs are sensitive to property rights and legal system, infrastructure and higher education and training. Following the results and the level of development of each regional group, determinants are consolidated into three groups (classes): basic-regulatory (labor market and property rights and legal system), specific-entrepreneurial (infrastructure, financial market and higher education and training) and improvement-driving (business sophistication and innovation). Each group of countries is affected by one or more groups of determinants depending on its development level: Africa as a group of countries is the least developed and is affected by basic-regulatory determinants only. Latin America and Asia are sensitive to basic-regulatory and specific- entrepreneurial determinants. These findings lead to the specific recommendations for each regional group.
The findings of the research lead to the implications of them. One of the most crucial findings is the insignificance of innovation for all groups of countries but Europe, Northern America and Australia. Therefore, the development of innovation in Africa, for example, is not the priority, the basic-regulatory and specific-entrepreneurial determinants should be targeted first.
Similar to this, specific policy recommendations for each group of countries are provided. Moreover, the results of the study are applicable on company-level for internalization of companies helping to understand the institutional context in countries for potential entrance. Additionally, the results are applicable for stimulation of corporate entrepreneurship: for example, the provision of financial loans for talented employees for a company in Latin America can stimulate potential improvement-driven employees and break the problem of finance availability, which is inherent for the region.
The paper achieved the goal stated in the introduction and solved the objectives. However, during the preparation of the research several directions of further research were identified. The main of them is associated with cultural determinants which affect improvement-driven opportunity entrepreneurship.
Literature review provided in Chapter 1 helps to identify the position of entrepreneurship in modern science. There are different approaches regarding entrepreneurship definition which may include only basic economic function or even the personal characteristics of an entrepreneur. This research follows the definition, according to which entrepreneur is a person who starts a business of any format. At the same time, the focus of the paper is on a narrow group of entrepreneurs, who are motivated to start a business by improvement opportunities.
The review of the literature on relationship of economic growth and entrepreneurship helped to identify the empirical evidence that the relationship between entrepreneurship and economic growth varies for different types of entrepreneurship: opportunity entrepreneurship is positively associated, while necessity entrepreneurship - neutrally (Acs et al., 2008).
The analysis of articles on the factors of entrepreneurs (global and regional) aimed to assess the variables and databases from which they are obtained. It encouraged to state the hypothesis that various factors affect entrepreneurship in regions of different development level differently. Hypotheses were stated for independent variables property rights and legal system, infrastructure, higher education and training, labor market, financial market, business sophistication and innovation regarding their effect on dependent variable improvement-driven opportunity entrepreneurship in Europe, Northern America and Australia, Latin America, Africa and Asia.
The methodology of the research is described in Chapter 2. It includes the description of databases, variables, samples, statistics. Regression models supported the proposition that a set of significant determinants is various for each regional group. Several hypotheses were omitted due to insignificance of beta coefficients of determinants, the majority of the hypotheses were supported. A few hypotheses were rejected: for example, opposite to expectations, property rights and legal system determinant is negatively associated with the dependent variable in Europe, Northern America and Australia.
In Chapter 3 detailed discussion of the results of the regression analysis was performed. Intuitive explanation applying different theoretical approaches solved the inconsistency of hypotheses and results. Some articles which were covered in literature review supported the results obtained. Moreover, the discussion included the review of reasons why the sets of determinants of entrepreneurship differ between groups of countries. The systematization of the results and classification of the determinants was proposed as a theoretical contribution of the paper.
The factors of improvement-driven opportunity entrepreneurship vary for different regions. In Europe, Northern America and Australia the entrepreneurship is sensitive to property rights and legal system, infrastructure, financial market, business sophistication, and innovation. Latin America is sensitive to infrastructure, higher education and training and financial market. African countries are affected by property rights and legal system and labor market. Asian entrepreneurs are sensitive to property rights and legal system, infrastructure and higher education and training. Following the results and the level of development of each regional group, determinants are consolidated into three groups (classes): basic-regulatory (labor market and property rights and legal system), specific-entrepreneurial (infrastructure, financial market and higher education and training) and improvement-driving (business sophistication and innovation). Each group of countries is affected by one or more groups of determinants depending on its development level: Africa as a group of countries is the least developed and is affected by basic-regulatory determinants only. Latin America and Asia are sensitive to basic-regulatory and specific- entrepreneurial determinants. These findings lead to the specific recommendations for each regional group.
The findings of the research lead to the implications of them. One of the most crucial findings is the insignificance of innovation for all groups of countries but Europe, Northern America and Australia. Therefore, the development of innovation in Africa, for example, is not the priority, the basic-regulatory and specific-entrepreneurial determinants should be targeted first.
Similar to this, specific policy recommendations for each group of countries are provided. Moreover, the results of the study are applicable on company-level for internalization of companies helping to understand the institutional context in countries for potential entrance. Additionally, the results are applicable for stimulation of corporate entrepreneurship: for example, the provision of financial loans for talented employees for a company in Latin America can stimulate potential improvement-driven employees and break the problem of finance availability, which is inherent for the region.
The paper achieved the goal stated in the introduction and solved the objectives. However, during the preparation of the research several directions of further research were identified. The main of them is associated with cultural determinants which affect improvement-driven opportunity entrepreneurship.