UN MODELO EMPÍRICO DE EMPRESARIALIDAD PARA LA ESPAÑA

DEL SIGLO XX

José Luis García Ruiz (UCM)

&

Teodosio Pérez Amaral (UCM)

INTRODUCTION (I)

• Since Schumpeter (1911), entrepreneurship has been seen as a key factor in economic growth.

• However, only in the 1980s some scholars began to deal scientifically with entrepreneurship trying to build theoretical and empirical models.

• Western governments were also concerned with the issue of entrepreneurship and new institutions were set up: the Observatory of European SMEs (1992), the Global Entrepreneurship Monitor (GEM) (1998-1999) and the OECD Centre for Entrepreneurship, SMEs & Local Development (2004).

INTRODUCTION (II)• According to Scott A. Shane (1996), it was necessary to

evolve from a "traits" to a "rates" approach, that is, from seeing entrepreneurs as individuals with psychological unique characteristics to see them as the product of environmental circumstances. For this school of thought longitudinal studies of rates of entrepreneurship were welcome.

• Shane (1996) was an attempt to provide an explanation for why rates of entrepreneurship in the US had varied in the period 1899-1988. The paper found strong support for the argument that changes in rates of entrepreneurship appear to be driven by changes in technology. Some evidence was also found for the effects of the Protestant Ethic, interest rates, prior rates of entrepreneurship, risk-taking propensity, business failure rates, economic growth, immigration and age distribution of the population.

• The conclusions of Shane (1996) were ambiguous and the author recommended the incorporation of some "trait variables" in the "rates" models of entrepreneurship.

INTRODUCTION (III)• In late 20th and early 21st century entrepreneurship has become a

buoying field of research.• Most of the scholars have identified entrepreneurship with the

creation of new firms (start-ups). That has been the case of Paul D. Reynolds (Babson College), coordinating principal investigator of the GEM since its inception in 1998-1999 until 2004. The GEM reports have been the main source of data for many private and public studies.

• The eclectic model proposed by David B. Audretsch (Indiana University) has gained widely recognition (Audretsch et al. 2002). The eclectic theory provides an integrated framework that was designed to guide empirical research in this area. The starting point of the analysis is the distinction between the supply side and the demand side of entrepreneurship. Key elements of the supply side are the demographic composition of the population, the resources and abilities of individuals and their attitudes towards entrepreneurship. The demand side represents the opportunities for entrepreneurship that are influenced by new technologies, the consumer demand and the industrial structure of the economy. In making their occupational choice between wage-employment and business ownership individuals asses the potential pecuniary and non-pecuniary rewards and risks involved. In these decisions is also important the role played by public policies.

INTRODUCTION (IV)• In Spain, the fist step was the publication in 2005 by the Consejo Económico y Social (CES) of El

proceso de creación de empresas y el dinamismo empresarial, a book completely based on GEM reports that put the stress in the suitability of an educational system oriented towards entrepreneurial values.

• At the same time it was distributed Emprendedores y espíritu empresarial en España en los albores del siglo XXI (2004), a research funded by the Fundación Rafael del Pino. This book was based on the answers of a sample of incorporated firms to a battery of questions. In 2008 the book was followed by La actividad emprendedora. Empresas y empresarios en España, 1997-2006, based on a new survey on the same issues. According to these studies, the Spanish entrepreneur in a man aged 40-45 that has entered the business world with 25 years. His educational level is either low or very high, because there is a clear polarization. Many of them have become entrepreneurs after a previous experience as wage-earners in their industries. The investment in R & D activities is very low.

INTRODUCTION (and V)• In 2007, Roberto Velasco and María Saiz published Políticas de creación de empresas y su

evaluación (Fundación Alternativas), where the authors reviewed the literature and proposed to "redirect some of the financial help to create start-ups towards the consolidation and growth of the incumbent firms […] because many of the new firms are structurally weak micro-firms that have emerged as a reaction to unemployment in the commercial and service sectors".

• In 2008, Julio Orlando de Castro et al. published La naturaleza del proceso emprendedor en España en el contexto internacional (Fundación BBVA), where the authors make a comparison between the situation in Spain and in other countries using the GEM data. In their conclusions the role of the social environment of the entrepreneur is stressed.

• Also in 2008, Vicente Salas et al. published El capital humano y los emprendedores en España (Fundación Bancaja), where the main conclusion is that "the entrepreneurial activity makes additions to the welfare if the mechanisms of allocation of resources lead the more capable [people with higher levels of human capital measured by years of education] towards the jobs where they can create higher direct and non-direct effects on the productivity". The stress on the quality of entrepreneurship is also present in Vicente Salas et al. (2008), Dinámica emprendedora en España (Fundación Alternativas).

A SCHUMPETERIAN MODEL (I)

• The study of the Spanish entrepreneurship with historical perspective is in the very early stages. In 2005, Jesús M. Valdaliso published El espíritu emprendedor en España: un análisis histórico (Ministerio de Educación y Ciencia), where the author proposed to measure the entrepreneurial initiative as the number of new joint-stock companies per capita. In the graph showed below, Valdaliso found an important correlation between that rate and the GDP per capita, reaching a optimistic conclusion: in the twentieth century the trend of the entrepreneurship was similar to the pace of the Spanish growth. In other words, entrepreneurship was not a cause of the backwardness of the Spanish economy.

A SCHUMPETERIAN MODEL (II)

• Another step in the historical approach to Spanish entrepreneurship was Educación, instituciones y empresa. Los determinantes del espíritu empresarial (2008), a work directed by Gabriel Tortella where José Luis García Ruiz explored the correlation between the entrepreneurship rate defined by Valdaliso and a set of five variables: 1) per capita income, 2) technological change, 3) availability of financial resources, 4) unemployment and 5) education.

A SCHUMPETERIAN MODEL (III)

• This paper tries to go beyond the previous one by specifying a multivariate model. After consideration of a wide range of variables, the authors selected a classic Schumpeterian model with the addition of supply-, demand- and institutional framework control variables.

• The dependent variable is NASCENT INCORPORATED BUSINESS (NIB), defined as the number of new joint-stock companies per year per million of inhabitants. The Schumpeterian entrepreneur is someone that do "creative destruction" through the setting up of new firms. Our entrepreneurs are in the highest rank because their firms are corporations. According to Thomas K. McCraw (2007), big firms are Schumpeterian because the great Harvard professor considers them as capable to do "creative destruction" as the small ones. Moreover, presumably, incorporated business has more quality than non-incorporated (basically, self-employed) and recent studies such as Salas et al. (2008) insist on the suitability of taking into account the quality of the entrepreneurship in the Spanish case.

• The source for the variable NIB has been the series elaborated by Xavier Tafunell in Carreras and Tafunell (eds.) (2005) with information from the public records on registration of all kind of incorporated firms. Figures for population came from Maluquer de Motes (2008).

A SCHUMPETERIAN MODEL (III)

• The graphs show the enormous increase of NIB since the 1980s. But also the boom in the WW I years, the frustration of hopes after the Civil War and the big spur after the accession of Spain to EEC (1986). The “Spanish miracle” (the 1960s) took place under the so-called “Schumpeter Mark II Regime”, where large firms were dominant, while the post-oil crises period was in Spain and everywhere a return to the highly entrepreneurial “Schumpeter Mark I Regime” of early Twentieth century that inspired Schumpeter (1911) (Wennekers et al. 2009).

010

0020

0030

00N

IB

1900 1920 1940 1960 1980 2000YEAR

A SCHUMPETERIAN MODEL (IV)

• First hypothesis: The relationship between the rate of technological change and the rate of entrepreneurship over time will be positive and significant. For Schumpeter it was clear that only the innovative entrepreneurs were socially necessary. In the Shane's model (1996), changes in technology are the more significant independent variable. In the survey of the literature by Audretsch (2002), innovation is one the key factors in linking entrepreneurship with economic performance.

• Second hypothesis: The relationship between interest rates and rates of entrepreneurship over time will be negative and significant. Schumpeter said that banks were the "gatekeepers of development" because without their resources it is impossible to carry out the investment projects. The role of “liquidity constraints” in entrepreneurship was specifically analyzed in Evans and Jovanovic (1989). In the Schumpeterian Shane´s model (1996), interest rates are an independent variable: the number of entrepreneurs who receive financing will be a function of the cost of capital. Finance is also present among the determinants of entrepreneurship in Audretsch (2002). In the framework of the eclectic model, a high interest rate discourages potential entrepreneurs from starting up a business because of the high costs and risks involved (Audrestsch et al. 2002).

A SCHUMPETERIAN MODEL (and V)

Technological Change (TCH) is measured by the ratio of new patents granted to residents per million of inhabitants. Source: Saiz (2005). Spain has been chronically weak in the technological realm (Ortiz Villajos 1999), but ups and downs are recognizable in the graph.

Interest rates (IR). Nominal long run interest rates have been taken from Carreras and Tafunell (2004), completed with series from the web of the Bank of Spain. Anti-inflation policies did move interest rates upwards between mid-1960s and mid-1980s.

050

100

150

200

TC

H

1900 1920 1940 1960 1980 2000YEAR

510

1520

IR

1900 1920 1940 1960 1980 2000YEAR

A CONTROL VARIABLE IN THE DEMAND SIDE (I)

• Per capita income: Changes in rates of entrepreneurship over time might be a result of changes in societal wealth. Since Kuznets (1971), various studies argue that economic development is accompanied by a decrease in the entrepreneurship rate (e.g., Mauriello, 2002). On the other hand it is observed that, since the 1970s, per capita income have had a positive impact on entrepreneurship in most developed countries. Evidence has been assembled for an underlying U-shaped relationship between the level of business ownership and per capita income (e.g., Carree et al. 2002, Wennekers et al. 2005, Carree et al. 2007, Wennekers et al. 2009).

A CONTROL VARIABLE IN THE DEMAND SIDE (and II)

Per capita income (PCI) is measured in constant euros of 2000. Sources: GDP in Maluquer de Motes (2009) and Population in Maluquer de Motes (2008). Three phases can be identified in the evolution of Spanish per capita income during the twentieth century: 1) 1901-1939, when the slight improvements made in the first three decades were lost during the crisis of the 1930s; 2) 1940-1960, which was a period of slow post-bellum recovery; 3) 1961-2000, where a trend of accelerated growth is easy to be recognized.

05

1015

PC

I

1900 1920 1940 1960 1980 2000YEAR

A CONTROL VARIABLE IN THE SUPPLY SIDE (I)

• Working Population Growth: The pace of population growth has important consequences for the level of entrepreneurship in a country. Countries that are characterized by a rapidly expanding population and work force are found to have a growing share of entrepreneurs in the work force (Audretsch et al. 2001).

A CONTROL VARIABLE IN THE SUPPLY SIDE (and II)

Working Population Growth (WPG) is measured by rates of change in working population using as source Nicolau (2005). The series shows an upward trend in the first half of the twentieth century with two dramatic falls in 1919 (after the boom of the WWI years) and 1938-1939 (the last years of the Civil War). In the 1950s, 1960s, and early 1970s the growth of the working population was clearly below that of the GDP. In those years of the Franco’s dictatorship, women were generally absent from the labor markets. This situation changed with the return to democracy in 1977.

-20

24

6W

PG

1900 1920 1940 1960 1980 2000YEAR

CONTROL VARIABLES IN THE INSTITUTIONAL FRAMEWORK (I)

• Higher Education: Many researchers have shown that higher education is positively associated with the tendency to be an entrepreneur in incorporated businesses (Robinson and Sexton 1994, Van der Sluis et al. 2003, Bosma et al. 2004, Tortella et al. 2008, Salas et al. 2008).

• Tax Rates: The impact of income taxes on the level of entrepreneurship is complex and even paradoxical (Bruce and Mohsin 2006, Henrekson and Douhan eds. 2008). High income tax rates reduce the returns on entrepreneurship but make possible the activity of many firms through the provision of public goods. Sometimes high income tax rates are associated with higher rates of entrepreneurship since self-employment creates a better opportunity for underreporting income than does wage employment (Gordon 1998, Audretsch et al. 2002, Parker 2003).

CONTROL VARIABLES IN THE INSTITUTIONAL FRAMEWORK (and II)

Higher Education (HE) are university students as a percentage of 20-24 years old population. Source: Núñez (2005) and Instituto de Evaluación (2000-2009). The figures were flat at very low levels before the Civil War, increased smoothly during the First Francoism and grew very fast in the 1960s, 1970s and 1980s.

Tax Rates (TR) are direct taxes as a percentage of GDP in current prices. Source: Comín and Díaz-Fuentes 2005. It is easy to observe that fiscal pressure was kept very low in Spain (less than 5 percent) before the reform that took place immediately after the democratic elections of 1977.

05

1015

2025

HE

1900 1920 1940 1960 1980 2000YEAR

24

68

10T

R

1900 1920 1940 1960 1980 2000YEAR

ENTREPRENEURSHIP AND ITS DETERMINANTS (I)

An unclear relationship between entrepreneurship and patent granting, TCH

The bibariate relationship between entrepreneurship and interest rate IR is backward bending, which is unusual.

010

0020

0030

00N

IB

0 50 100 150 200TCH

010

0020

0030

00N

IB

5 10 15 20IR

ENTREPRENEURSHIP AND ITS DETERMINANTS (II)

A clear positive relationship between entrepreneurship and per capita income, PCI

010

0020

0030

00N

IB

0 5 10 15PCI

01

000

200

03

000

NIB

-2 0 2 4 6WPG

A slight positive relationship between entrepreneurship and working population growth: WPG

ENTREPRENEURSHIP AND ITS DETERMINANTS (IV)

A positive relationship between entrepreneurship and higher education, HE

A positive relationship between entrepreneurship and tax rate, TR. Specially clear from 1978 on.

010

0020

0030

00N

IB

0 5 10 15 20 25HE

010

0020

0030

00N

IB

2 4 6 8 10TR

A MULTIVARIATE EQUATION FOR ENTREPRENEURSHIP

• Dependent Variable: Nascent Incorporated Business, NIB

Variable names Coef. t P>|t| Significance _________________________________________________

Patents TCH .770 1.39 0.17 Interest IR -48.0 -4.67 0.00

SIGNIFICANT Pc Income PCI -155 -3.62 0.00

SIGNIFICANT Pc Incomesq PCISQ 12.8 4.80 0.00 SIGNIFICANT Higher Education HE 45.7 2.58 0.01

SIGNIFICANT Tax Rates TR 102.2 3.78 0.00

SIGNIFICANT Constant CONS 219.6 1.87 0.06

MULTIVARIATE EQUATION FOR ENTREPRENEURSHIP: 1901-2000

A MULTIVARIATE EQUATION FOR ENTREPRENEURSHIP: DIAGNOSIS

• Period: 1901-2000

• Number of effective observations = 100

• Joint significance: F( 6, 93) = 436.53, Prob > F = 0.000

• R-squared = 0.9657

• Adj R-squared = 0.9635

• Durbin Watson: 0.88• 1%:-3.521

DIAGNOSIS OF THE 1901-2000 ENTREPRENEURSHIP EQUATION

COMMENTS (I)

• The entrepreneurship equation is a long run equilibrium relationship estimated with historical data that present collinearity. However the individual estimates are consistent and allow valid hypothesis testing.

COMMENTS ON THE 1901-2000 ENTREPRENEURSHIP EQUATION (I)

-40

0-2

00

020

040

060

0R

esi

dua

ls

1900 1920 1940 1960 1980 2000YEAR

A MULTIVARIATE EQUATION FOR ENTREPRENEURSHIP: DIAGNOSIS

Patents Marginally significant Interest Negative and SIGNIFICANT, as expected Pc Income Take it into account together with Pc

Incomesq Pc Incomesq SIGNIFICANT, compatible with a U shape

hypothesis of NIB with income Higher Education SIGNIFICANT, compatible with the

hypothesis that NIB tends to be undertaken by educated people

Tax Rates SIGNIFICANT, compatible with the hypothesis of tax avoidance or

benefiting from public expenditure.

COMMENTS OF THE 1901-2000 ENTREPRENEURSHIP EQUATION (II)

A MULTIVARIATE EQUATION FOR ENTREPRENEURSHIP

• Dependent Variable: Nascent Incorporated Business, NIB

Variable names Coef. t P>|t| Significance _________________________________________________

Patents TCH 0.36 3.37 0.00SIGNIFICANT

Interest IR -20.7 -3.38 0.00SIGNIFICANT

Pc Income PCI -66.9 -0.99 0.33 Pc Incomesq PCISQ 10.9 0.92 0.36 Higher Education HE 9.70 0.97 0.34 Tax Rates TR -41.5 -4.87 0.00

SIGNIFICANT Constant CONS 346.6 3.52 0.00

ENTREPRENEURSHIP: 1901-1960

A MULTIVARIATE EQUATION FOR ENTREPRENEURSHIP

• Dependent Variable: Nascent Incorporated Business, NIB

Variable names Coef. t P>|t| Significance _________________________________________________

Patents TCH 1.44 0.43 0.67 Interest IR -60.0 -3.08 0.00

SIGNIFICANT Pc Income PCI -24.2 -0.12 0.90 Pc Incomesq PCISQ 5.96 0.67 0.50 Higher Education HE 24.4 0.76 0.45 Tax Rates TR 168.1 3 .06 0.00

SIGNIFICANT Constant CONS -343 -0.31 0.76

ENTREPRENEURSHIP: 1961-2000

Summary I

• Patents (TCH) Positive but insignificant along the century but significant only in the first period.

• Interest (IR) Negative and significant along the century, higher impact in the first period, rather than in the second.

• Pc Income and Pc Income squared (PCI and PCISQ): Significant along the century, insignificant in each subsample, but correct signs. The variation across the century is needed to obtain precise estimates.

• Higher education (HE): Positive and significant along the century, but insignificant in each sample. The variation across the century is needed for a precise estimation.

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Summary II

• Tax Rate (TR): Positive across the century, but negative in the first period while positive in the second. The second period dominates because it has more variation of the variables NIB and TR.

29