Explaining variation in nascent entrepreneurship

This paper aims at explaining cross-country variation in nascent entrepreneurship. Regression analysis is applied using various explanatory variables derived from three different approaches. We make use of the Global Entrepreneurship Monitor database, including nascent entrepreneurship rates for 36 countries in 2002 as well as variables from standardized national statistics. The first approach relates the level of entrepreneurship of a country to its level of economic development. We find evidence for a U-shaped relationship. The second approach deals with a regime switch where the innovative advantage moves from large, established enterprises to small and new firms, because new technologies have reduced the importance of scale economies in many sectors. The third approach assumes that nascent entrepreneurship partly depends upon various non-economic conditions in the domains technology, demography, culture and institutions, influencing opportunities, resources, skills and preferences. Several indicators of these aggregate conditions are found to influence nascent entrepreneurship. A full, eclectic model combining the three approaches includes a U-shaped relationship with per capita income as well as with Porter's innovative capacity index in addition to effects of the total business ownership rate (+), social security expenditure (-), the aggregate tax rate (+) and population growth (+). In the model a '(former) centralized command economies' dummy also plays a role (-). Finally, the paper investigates whether determinants of nascent entrepreneurship differ for opportunity-based and necessity- based forms of entrepreneurial activity. A U-shaped relationship with per capita income as well as with the innovative capacity index is only found for opportunity-based entrepreneurial activity. For economically advanced nations striving to promote entrepreneurship, the results suggest that improving incentive structures for entrepreneurship and promoting the entrepreneurial exploitation of scientific findings offer a promising approach for public policy.