Explaining nascent entrepreneurship across countries

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 depends upon aggregate conditions such as technology, demography, culture and institutions, influencing opportunities, resources, skills and preferences. Several indicators of these aggregate conditions are found to correlate with nascent entrepreneurship. A full 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 social security expenditure (-) and the total business ownership rate (+). Finally, a (former) communist-country dummy plays an important role.