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Understanding the drivers of an ‘entrepreneurial’ economy: Lessons from Japan and the Netherlands

Understanding the drivers of an ‘entrepreneurial’ economy: Lessons from Japan and the Netherlands. Hiroyuki Okamuro (Hitotsubashi University) André van Stel (EIM Business and Policy Research) Ingrid Verheul (Rotterdam School of Management). Corvinus University Budapest, May 03, 2011.

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Understanding the drivers of an ‘entrepreneurial’ economy: Lessons from Japan and the Netherlands

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  1. Understanding the drivers of an ‘entrepreneurial’ economy: Lessons from Japan and the Netherlands Hiroyuki Okamuro (Hitotsubashi University) André van Stel (EIM Business and Policy Research) Ingrid Verheul (Rotterdam School of Management) Corvinus University Budapest,May 03, 2011

  2. Motivation • Manydevelopedcountries move from a ‘managed’ toan ‘entrepreneurial’ economy (AudretschandThurik, 2000, 2010). • Speed of transitionvariesacrosscountries. • We investigate the differencesbetween a more ‘managed’ economy (Japan) and a more ‘entrepreneurial’ economy (the Netherlands). • Contrasting trends in the Netherlands andJapan (see next figure) • In particular, we examinewhatfactors contributepositivelyornegativelytovariousentrepreneurship indicators in Japan and the Netherlands, relativeto a benchmark of OECD countries. • Byzooming in on specificcountries, we canderive policy implicationsspecificallyfocused on these countries (instead of derivinggeneralconclusionsbased on a cross-countryregression).

  3. Business ownership rate (non-agriculture) in Japan, Netherlands & US, 1972-2008

  4. Structure of paper • Comparison of various indicators of entrepreneurshipand the entrepreneurialclimate over time (US as a benchmark) • Theoryaboutdeterminants of entrepreneurship at the macro level • Decomposition analysis, based on earlierstudyby Hartog, van Stel andStorey (2010), tobetterunderstand the differences in entrepreneurship levels between Japan and NL • Conclusions

  5. Entrepreneurship in Japan and NL: general patterns 2002-2009 • Nascentandyoung business entrepreneurshiprateslower in Japan (comparedto NL) • Business ownershipratelower in Japan • Start-up intentions (next threeyears) lower in Japan • Share of fast-growing companies lower in Japan (but start-up sizehigher in Japan) • Share of female entrepreneurs lower in Japan • Share of ambitious entrepreneurs relatively low in bothcountries • ‘Perceive business opportunities” and “skills to start a new business” rateslower in Japan • Importantly, on most indicators bothcountries score lowerthan United States

  6. Nascent entrepreneurial activity rate, 2002-2006 (GEM)

  7. Young business entrepreneurial activity rate, 2002-2006 (GEM)

  8. Non-agricultural business ownership rate,2002-2006 (EIM COMPENDIA data base)

  9. Future business start-up rate in Japan, Netherlands & US, 2002-2009

  10. Share of fast-growing enterprises (%) in Japan, Netherlands & US, 1995-2008

  11. Total Entrepreneurial Activity in Japan, Netherlands & US, 2002-2009, by gender

  12. Total Entrepreneurial Activity in Japan, Netherlands & US, 2002-2008, by ambition level

  13. “Perceive business opportunities” rate in Japan, Netherlands & US, 2002-2009

  14. “Skills to start a new business” rate in Japan, Netherlands & US, 2002-2009

  15. Theory: five groups of determinants of entrepreneurship (Verheul et al. 2002) • Macro-economicconditions • (share of service sector, unemploymentrate, per capita income) • Technological factors • (R&D expenditures/GDP) • Socio-demographic factors • (enrollment in sec. andtert. education, agecomposition, femalelabour share) • Institutional environment • (social security, taxes/GDP, employmentprotection, rule of law) • Cultural factors • (power distance, individualism, masculinity, uncertaintyavoidance)

  16. Decompositionanalysis (1) • We decomposefitted (predicted) values of the levels of the nascent, young business and business ownershiprates of Japan and NL (and US), averaged over 2002-2006, intoindividualcontributions of explanatoryvariables, based on Hartog et al. (2010) estimations, bymultiplying the estimatedcoefficientwith the observed (real) country value of the variable. • Bygroupingsimilarexplanatory variables, we canestimate the contribution of eachgroup of factors. • We thencomputeforeachvariable the relativedeviationof Japan or NL from the overall averagecontributionof 20 sample countries, bydeviding the difference of the estimatedcontributionsbetween Japan (or NL) and the whole sample by the entrepreneurship ratio of overall average.

  17. Decompositionanalysis (2) • In thisway, the percentage deviation of Japan or NL from the overall country average level of entrepreneurshipcanbedecomposedintodeviations per (group of) variable(s). • An example: social security (institutional factor) in Table 4 • - The overall average of the young business entrepreneurship (YBE) ratio (actual) is 2.97%. • - The contribution of social security in overall average (estimatedcoefficient* overall averagevalue of social security variable) is -1.34. • - The computedcontribution of thisvariableforJapan is -0.35. • - Thus, the deviation of Japan from overall average of this variables is 0.99 (-0.35 – (-1.34)). • - Finally, we calculate the deviation of contributionrelativeto YBE ratio as 33.2% (0.99/2.97). • For this case we say “positive deviation”, meaning that the overall negative contribution of this variable is smaller in Japan.

  18. Example 1: Contribution of macro economic conditions to young business rates in 20 countries, 2002-2006 (contribution relative to overall average)

  19. Example 2: Contribution of technological factors to young business rates in 20 countries, 2002-2006 (contribution relative to overall average)

  20. Example 3: Contribution of socio-demographic factors to young business rates in 20 countries, 2002-2006 (contribution relative to overall average)

  21. Example 4: Contribution of institutional environment to young business rates in 20 countries, 2002-2006 (contribution relative to overall average)

  22. Example 5: Contribution of cultural factors to young business rates in 20 countries, 2002-2006 (contribution relative to overall average)

  23. Mainfindings (relativetooverall average) • Both countries show littledeviation in the contribution of macro economicconditions. • Low femalelabour share in Japan has a positive but smaller contributiontonascententrepreneurship. • Tertialeducationandagecomposition have positive but smaller contributionto YB entrepreneurship in Japan. • Institutional environment in NL has a negativeandlargercontributionto YB entrepreneurshipandbusiness ownershiprates(high levels of social security andemploymentprotection). • Negativecontribution of institutional factors in Japan is smaller (low taxesandsocial security). • Cultural factors have positve but smaller contributiontoYB entrepreneurshipand business ownershipratio in Japan (high power distance, low individualism, high masculinity). • Netherlands the opposite: largerpositivecontribution of culture

  24. Conclusions and policy implications • We investigate the factors of differencesin entrepreneurship levels between Japan andNL usingdecomposition analysis. • This type of analysis allowsusto zoom in on the specificcausesfor the twocountriesexplainingtheirentrepreneurshiplevels. • The comparisonwith the OECD benchmark makesiteasiertoevaluatewhereimprovementscanbe made (i.e. influencingdeterminantssothatentrepreneurshipratesincrease). • NL: Institutionalenvironment canbeimproved. • Japan: Culturalvalues (e.g. rewardingindividualachievement) andfemalelabourparticipationcanbeimproved.

  25. Major references • Audretsch, D.B. and A.R. Thurik, 2000, Capitalism and democracy in the 21st century: from the managed to the entrepreneurial economy, Journal of Evolutionary Economics 10 (1-2), 17-34. • Hartog, C., Van Stel, A.J. and D.J. Storey, 2010, Institutions and entrepreneurship: The role of the rule of law, EIM Scales paper H201003, Zoetermeer: EIM Business and Policy Research. • Hofstede, G., 2001, Culture's Consequences: Comparing Values, Behaviors, Institutions and Organizations Across Nations, 1st edition in 1980, Thousand Oaks CA: Sage Publications, USA. • Verheul, I., Wennekers, S., Audretsch, D. and R. Thurik, 2002, An Eclectic Theory of Entrepreneurship: Policies, Institutions and Culture, in: Audretsch, D.B., Thurik, A.R., Verheul, I. and A.R.M. Wennekers (eds.), Entrepreneurship: Determinants and Policy in a European-US Comparison, Boston/Dordrecht: Kluwer Academic Publishers, 11-81.

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