Motivation Based Policies for an Entrepreneurial EU Economy

Transcription

1 H Motivation Based Policies for an Entrepreneurial EU Economy S. Jolanda A. Hessels Marco van Gelderen A. Roy Thurik Zoetermeer, December,

2 This report is published under the SCALES-initiative (SCientific AnaLysis of Entrepreneurship and SMEs), as part of the 'SMEs and Entrepreneurship programme' financed by the Netherlands Ministry of Economic Affairs. Most recent EIM reports and much more on SMEs and Entrepreneurship can be found at: address: mail address: telephone: telefax: website: Italiëlaan 33 P.O. Box AA Zoetermeer The responsibility for the contents of this report lies with EIM. Quoting numbers or text in papers, essays and books is permitted only when the source is clearly mentioned. No part of this publication may be copied and/or published in any form or by any means, or stored in a retrieval system, without the prior written permission of EIM. EIM does not accept responsibility for printing errors and/or other imperfections. 2

3 PRELIMINARY VERSION DO NOT QUOTE WITHOUT THE CONSENT OF THE AUTHORS MOTIVATION BASED POLICIES FOR AN ENTREPRENEURIAL EU ECONOMY S. Jolanda A. Hessels A Marco van Gelderen B A. Roy Thurik C, A A EIM Business and Policy Research, Zoetermeer, The Netherlands B Massey University, College of Business, Auckland, New Zealand C Centre for Advanced Small Business Economics (CASBEC), Erasmus University Rotterdam, The Netherlands Paper presented at 2006 Babson College Entrepreneurship Research Conference (Bloomington/Indiana, June 8-10, 2006) Abstract: This paper investigates the impact of various entrepreneurial motives and institutional conditions on entrepreneurial aspirations in terms of innovativeness, job growth expectations and export orientation. We estimate a two-equation model explaining entrepreneurial motivations and entrepreneurial aspirations, while taking into account the interrelationship between both groups of variables. We use data from the Global Entrepreneurship Monitor (GEM) and find that entrepreneurial aspirations are different for various types of entrepreneurial motives. For example, we find that the increase wealth motive as a prime driver for becoming selfemployed is positively related to innovation and growth ambitions, whereas we find no evidence of a relation between the independence motive and entrepreneurial aspirations. On the basis of our findings policy directions are presented for an entrepreneurial EU economy. Version: 2006 Keywords: entrepreneurship, policies, entrepreneurial motivation, entrepreneurial aspirations, Global Entrepreneurship Monitor JEL-classification: H50, L21, L26, M13 Document:DM-# v1- Motivation_Based_Policies_for_an_Entrepreneurial_EU_Economy.DOC Correspondence: Jolanda Hessels, joh@eim.nl 3

4 1. Introduction From the 1970s onwards the importance of small businesses has increased in most European countries and North America, which marks the shift from the Managed Economy to the Entrepreneurial Economy (Audretsch and Thurik 2001, 2004). The shift from the Managed to the Entrepreneurial Economy may, among others, be explained by ICT developments and globalization which have resulted in an increased specialization in knowledge based activities in developed countries (Audretsch and Thurik 2000, 2001)). Technology and globalization may require entrepreneurial actions by individuals in knowledge-based ventures. With the shift from the Managed to the Entrepreneurial Economy came the renewed perception of the importance of entrepreneurship. A growing body of literature states that in modern economies new and small firms make a positive contribution to innovation and economic growth (e.g. Acs and Audretsch, 1990, Audretsch and Thurik, 2000). We state that entrepreneurial motivation may influence entrepreneurial aspirations in terms of innovation and growth. Prime motivators for people to become self-employed are autonomy, wealth, and risk perception (see e.g. Van Gelderen, 2004; Douglas and Shephard, 2002). In this paper we empirically test the influence of entrepreneurial motivation on entrepreneurial growth ambitions at the macro level. We build on a framework that identifies two dimensions or main institutional conditions that influence entrepreneurial motivation: (1) the uncertainty versus certainty of living conditions and (2) the level of accumulated wealth (less wealthy versus wealthy). Regions with generous social security and welfare schemes can be labelled as certain, regions that emphasize the responsibility of the individual for its survival as uncertain. We hypothesize that entrepreneurial ambitions or aspirations in the emerging Entrepreneurial Economy will differ along these dimensions. For example, in regions where high levels of accumulated wealth are combined with high degrees of social security and employment protection, individuals will be predominantly interested in so-called lifestyle entrepreneurship (e.g., Van Gelderen, Thurik, and Bosma, 2005). Autonomy will be an important motive for becoming self-employed. Self-employment is a vehicle to freedom-related needs of the individual and ambitions to grow a big or innovative business will be low. In regions where levels of accumulated wealth are high, but there is a relative lack of social security nets and employment protection economic survival of entrepreneurs will depend more on the survival of their business. Therefore, increase wealth will be a dominant motive for becoming an entrepreneur and individuals will tend to be more growth- and innovation-oriented. The present contribution investigates the role of the psychology of the individuals taking part in this Entrepreneurial Economy. The aim of the study is to investigate how entrepreneurial motivations and institutional conditions are related to entrepreneurial aspirations in order to identify possibilities for policy intervention within the EU. The paper is organized as follows. We first discuss relevant literature regarding entrepreneurial motivations and aspirations. In the subsequent sections we elaborate on the main data used, we discuss our research methodology and present the empirical results. Finallly, we discuss the study s findings and identify some policy implications. 4

5 2. Literature 2.1 Entrepreneurial motivations Audretsch and Thurik (2000, 2001) point to ICT developments and globalisation when explaining the emergence of the Entrepreneurial Economy. Because of these developments, large firms in the developed countries were able to relocate much of their production to low wage countries. Being at a comparative disadvantage in terms of wage levels, developed countries had to look elsewhere in order to maintain low unemployment as well as high wages. The answer was to specialize in knowledge based activities. These cannot be easily transferred to low wage countries, and are nurtured by local or regional characteristics (e.g., fashion in Milan, culinary arts in Paris, ICT in Silicon Valley). The knowledge economy gives rise to the Entrepreneurial Economy because of the inherent uncertainty of ideas. Ideas need to be tried out, and it is difficult to predict in advance what will be successful or not. Firms cannot pursue all opportunities recognized and instead focus on a few. If people have an idea that seems worth a try on the market, they will have to start a business, in order to find out whether their idea proves viable. Still, technology and globalisation are constructs that do not start businesses. The Entrepreneurial Economy requires actions by individuals in knowledge-based ventures. The strength and type of entrepreneurial motivation influence whether and which type of action will be taken, and therefore their eventual macro-economic influences (see Weber (1915) and McClelland (1961) for early seminal examples of studies of macro-economic psychology). Studies of entrepreneurial motivation, defined as the motivation to start a business, come in three types. First, there are studies of reasons, motives, or goals to start a business. In this type of study, being mostly conducted in western countries where push motives are less prevalent, autonomy (independence, freedom) is a dominant motive (Kolvereid, 1996; Feldman en Bolino, 2000; Carter, Gartner, Shaver, and Gatewood, 2003; Shane, Locke, and Collins, 2003; Wilson, Marlina, and Kickul, 2004; van Gelderen and Jansen, 2006), as well as material gains, especially in conjunction with a perceived instrumentality of wealth (Scheinberg and MacMillan, 1988; Carter, Gartner, Shaver, and Gatewood, 2003). Push motives, for example when (a threat of) unemployment forces people into self-employment, play a major role in developing countries, and also in developed countries, albeit to a lesser extent. When reasons not to start a business are studied, a need for financial security stands out (van Gelderen, Brand, Van Praag, Bodewes, Poutsma, and Van Gils, 2006), in other words, people do not start a business because they like risk, but rather, people don t start a business, because they prefer the security associated with being an employee. In yet another approach the motivating properties of the environment are highlighted, with the perception of opportunities being a trigger to a wish for starting a business. Second, there are cost-benefit types of studies that try to explain the decision to (intent to) start a business (e.g., Douglas and Shepherd, 2002). In this type of study, material and immaterial risks and gains are brought into some decision function. Third, there are studies of entrepreneurial motivation in which motives are conceived of as traits, e.g., studies on need for achievement (McClelland, 1961) and need for power (McClelland, 1975). nach and npower usually do not figure heavily in the first two types of studies just mentioned, as actual business starters do not often list these motives as conscious reasons to start a business. While we attempt in this paragraph to connect individual motivation to level and type of national entre- 5

6 preneurship, just as McClelland (1961) attempted, we will proceed from the motivation as experienced by the entrepreneur and therefore disregard need for achievement. So autonomy, wealth, risk perception (with financial security as a reversed predictor), and the recognition of opportunities stand out as motivators for people to become self-employed. While policymakers all over the world like growth, employment, and innovation, we expect that the achievement of these outcomes will depend on the strength and prevalence of these motives. In the remainder of this paper we will investigate, using GEM data, how the type of entrepreneurial motivation is related to the type of outcomes that business starters aim to achieve, and how entrepreneurial motivation itself is impacted on by the institutional environment in which entrepreneurs operate. In the final paragraph we will discuss how this affects policy implications. 2.2 Entrepreneurial motivations in relation to institutional environment and entrepreneurial aspirations We now explore conceptually how macro-conditions are related to individual entrepreneurial motivation, and how the type of entrepreneurial motivation relates to outcome (aspiration) variables. Figure 1 shows two main conditions that we expect to influence entrepreneurial motivation (for other relevant conditions see Wennekers, Uhlaner and Thurik, 2003), and lists examples of EU regions categorized by these dimensions. The first dimension concerns the uncertainty versus certainty of living conditions. Regions with generous social security and welfare schemes can be labelled as secure, regions which place close to full responsibility to the individual for its survival as less secure. The second dimension concerns the level of accumulated wealth. Figure 1: Regions compared on two dimensions affecting entrepreneurial motivation Uncertainty IV I E.g., Eastern Europe E.g., United Kingdom, Ireland Less wealthy Wealthy E.g., Eastern Europe before the fall of the Berlin Wall E.g., Western Europe, Scandinavia III Certainty II 6

7 The dimensions may well work out differentially on the type of entrepreneurial motivation and the level of entrepreneurial ambitions. We start with the regions of Western Europe and Scandinavia in quadrant 2. The accumulated wealth of these regions, combined with high degrees of state-installed security nets and the protection provided by labour laws, had resulted in individuals predominantly interested in so-called lifestyle entrepreneurship (e.g., Van Gelderen, Thurik, and Bosma, 2005). Wealth has made a more individualized lifestyle possible. This means that there will be a strong emphasis on the individual and his needs, on freedom of choice, and on self expression and fulfilment (Van Gelderen and Jansen, 2006). Selfemployment is very popular as a vehicle to serve the freedom-related needs of the individual; it will make a lifestyle possible in which one can decide oneself on goals, methods, and time scheduling. There are little ambitions to grow a big business. Variety may still occur though, as autonomy driven entrepreneurs tend to create diversity in the economy just by doing things independently (Sayers, Van Gelderen, and Keen, 2006). The relative lack of security nets and labour law protection in the U.K. (as in the U.S.) (quadrant 1) may explain why individuals tend to be more growth- and innovation oriented than their Western- and Northern European counterparts. For them entrepreneurship may also mean the achievement of a highly valued autonomy. However, their economic survival will depend more on the survival of their business. In order to survive, entrepreneurs in these regions are more growth- and innovation oriented. This will also result in better performances in the Entrepreneurial Economy, as the importance of knowledge as a factor of production implies speedy changes of industry conditions. Moreover, being more used to uncertainty in terms of personal economic survival, individuals in this region may also be more used to dealing with industry-related types of uncertainty. The regions mentioned in the other two quadrants are less wealthy. To start with quadrant 3, in the Eastern European countries before the fall of the Berlin Wall there were many legal barriers to entrepreneurship. However, even apart from legal barriers, there existed very little personal initiative because of socialization effects (Frese et al., 1997). This lack of initiative was strongly reinforced by high degrees of social security. However, when daily economic survival is seriously at stake, which is currently the case in many of the former communist Eastern European countries, a strong entrepreneurial motivation may develop. The right institutional conditions should be present to guide this energy into new businesses instead of in other things (Baumol, 1991). These individuals will tend to be more growth oriented; however they will be less innovation oriented because of restraints in their access to capital and technology. Our purpose at this stage is to provide exploratory evidence for the relevance of motivation based policies. In the next sections of this paper we will first examine empirically what is the influence of the institutional environment (wealth/uncertainty) on entrepreneurial motiovations. Next, we will examine whether different entrepreneurial motivations have a different impact on entrepreneurial aspirations, while taking into account the institutional environment. 7

8 3. Methodology and Data In order to examine the determinants of entrepreneurial motivations and entrepreneurial aspirations we will estimate a two-equation model. This model takes the following form: M = f (I, X) A = f (M, I, X) Where: M = entrepreneurial motivations A = entrepreneurial aspirations I = institutional environment X = socio-economic variables In our model entrepreneurial motivation has a specific role as this variable appears on the one hand as dependent variable in equation 1 and on the other hand as independent variable in equation 2. The set-up of our model parallels the model of Grilo and Irigoyen (2006) in which they investigate determinants of latent and actual entrepreneurship. We make use of various data from the Global Entrepreneurship Monitor (GEM) 2005 Adult Population Survey for entrepreneurial motivations and entrepreneurial aspirations (levels of innovation, job growth expectations and export orientation of early-stage entrepreneurs). We also use data from other sources such as the World Bank and the World Competitiveness Yearbook. The unit of analysis is the country level. 3.1 Entrepreneurial Motivations Several measures of entrepreneurial motivation are used in this paper. These measures are taken from GEM The measures for entrepreneurial motivation relate to the Total earlystage Entrepreneurial Activity (TEA) rate, which is defined as the percentage of the adult population (18-64 years old) that is either actively involved in starting a new firm (nascent entrepreneur) or that is the owner of manager of a business that is less than 42 months old (young business owner). As indicators for entrepreneurial motivation we use the necessity motive, the independence motive and the increase wealth motive, expressed as percentage of TEA: - Necessity motive. The share of early-stage entrepreneurs that indicates to participate primarily in entrepreneurial activity because they have no other options for work. - Independence motive. The share of early-stage entrepreneurs for which independence is the main motive for becoming an entrepreneur. - Increase wealth motive. This variable denotes to the share of early-stage entrepreneurs that indicate that their prime motive for being or becoming an entrepreneur is to increase wealth. 8

9 3.2 Entrepreneurial Aspirations For measures of entrepreneurial aspirations we use GEM data on innovativeness, job growth expectations and export orientations. For innovativeness we use the following indicators: - Uses very latest technology. This variable denotes to the rate of early-stage entrepreneurs in the adult population that indicates to make use of technologies that have been available for less than 1 year; - Offers products/services that are new to all customers. This variable denotes to the rate of people involved in total early-stage entrepreneurial activity that have indicated to offer a product or service that is new to the market. - None businesses offer the same product. This variable expresses the rate of earlystage entrepreneurs in the adult population of a country that offer a product or service that is not sold by other businesses. Furthermore, as indicator for job growth expectations we use expects medium job growth, which refers to the rate of early-stage entrepreneurs in the adult population that expect to create 6 or more jobs in the next five years, and expects high job growth, which refers to the rate of early-stage entrepreneurs that expect to create 20 or more jobs in five years time. As indicators for export involvement we use the variables export orientation, which denotes to the rate of new entrepreneurs for which at least 1% of their customers live outside the country borders, and substantial export orientation, which refers to the rate of early-stage entrepreneurs for which 26% or more of their customers live abroad. 3.3 Institutional Environment (wealth/uncertainty) We use GDP per Capita as indicator for wealth and the social security contribution rate as indicator for certainty/uncertainty. Furthermore, we also include an interaction term of GDP per capita and the social security contribution rate (GDP*Social Security): - GDP per Capita. Gross national income per capita is expressed in purchasing power parities per US$. These data are taken from the World Development Indicators database of the World Bank. - Social security contribution rate. This is the total (employer s and employee s) compulsory social security contribution rate taken from the World Competitiveness Yearbook 2005 (WCY). 3.4 Socio-Economic Controls The following control variables are included in the analysis: - GDP Growth. Data on GDP Growth for 2005 are taken from the World Economic Outlook Database from the International Monetary Fund (IMF). - % Population yrs. This variable refers to the percentage of people age 25 to 44 years in the total population for the year Data is taken from the US Bureau of the Census. - Gross tertiary enrolment ratio. The gross tertiary enrolment ratio refers to the number of people enrolled in tertiary education expressed as a percentage of the population in the appropriate age range (the five-year age group following on from the secondary school leaving age). These data are derived from the World Development Indicators database of the World Bank. - Value added in services (% of GDP). We use data on value added in services from the World Development Indicators database of the World Bank. Value added is the net output of the sector after adding up all outputs and subtracting intermediate inputs. 9

10 4. Empirical analysis We intend to estimate equation 1 and 2 as presented above. We have data for 29 countries that participated in the Global Entrepreneurship Monitor Step 1: Investigating the influence of Institutional Environment (wealth/uncertainty) on Entrepreneurial Motivations Regression results for equation 1 are presented in Table 1. The analysis is meant to illustrate how the institutional environment in terms of wealth and uncertainty may affect various entrepreneurial motivations. For each of the dependent variables for entrepreneurial motivations (necessity motive, independence motive and increase wealth motive) we depart from a base model that includes GDP per capita, social security and an interaction term of GDP per Capita and social security (Model 1), and then present a model that includes these variables as well as socio-economic controls (Model 2). For the necessity motive we find that GDP per capita has a significant negative impact in Model 1, indicating that when a country s GDP per capita increases, its share of necessity based entrepreneurs will decline. We find no significant impact for social security on necessity entrepreneurship in Model 1. However, when socio-economic controls are included (Model 2) the impact of social security on the necessity motive becomes significant positive, whereas no significant impact for GDP per capita is found. One explanation for the positive impact that we find for the social security contribution rate may be that a high level of social security expenditures may be indicative for a high level of beneficiaries or unemployed people within a country. Hence, when unemployment levels are higher this may result in a higher share of necessity-motivated entrepreneurs. For the independence motive we find that GDP per capita has a significant positive impact and social security has a significant negative impact in Model 1. When socio-economic controls are included we no longer find a significant effect for GDP per capita, whereas the significant negative impact of the social security contribution rate becomes stronger (Model 2). Table 1 also shows a significant negative impact of GDP per capita on the increase wealth motive in Model 1. However, when socio-economic control variables are included in the analysis (Model 2) we no longer find a significant impact for GDP per capita. 10

11 Table 1 Investigating the impact of Institutional Environment (wealth/uncertainty) on Entrepreneurial Motivation DEPENDENT VARIABLES: ENTREPRENEURIAL MOTIVATIONS Necessity motive Independence motive Increase wealth motive Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Constant 0.35*** 1.31*** 0.25*** *** (6.68) (2.99) (5.64) (0.85) (5.64) (-0.32) GDP Capita -0.77*** (-4.21) Soc. security contribution 0.13 rate (1.56) GDP * Social 0.01 security (0.57) Institutional Environment *** 0.31 (-1.50) (4.65) (1.39) 0.22** -0.17** -0.23*** (2.71) (-2.45) (-3.09) (1.24) (-0.94) (-0.39) -0.31* (-1.74) 0.08 (0.99) 0.01 (0.89) (-1.34) 0.09 (0.97) 0.00 (0.37) Socio-economic controls GDP Growth (-0.60) Tertiary Enrolment -0.00** ratio (-2.40) % Population ** yrs Value added in services (% of GDP) (-2.34) (-1.20) -0.03* (-1.85) 0.00 (1.52) 0.01 (0.72) (-0.73) 0.02 (1.09) 0.00 (0.96) 0.01 (1.25) (-0.27) R² Observations 29 ***: p<0.01; **: p<0.05; *: p<

12 Step 2: Investigating the influence of Entrepreneurial Motivation on Entrepreneurial Aspirations In order to investigate the influence of entrepreneurial motivations on entrepreneurial aspirations in terms of innovativeness, job growth and export orientation we carry out regression analysis. As a first step we take a model that only includes the various entrepreneurial motives without taking into account any other controls or explanatory variables. Regression results are presented in Table 2. We find no significant impact for the necessity motive and the independence motive on entrepreneurial aspirations. For the increase wealth motive we find a significant positive impact on the use of very latest technology and on medium and high job growth expectations. Table 2 Investigating the impact of Entrepreneurial Motivation on Entrepreneurial Aspirations DEPENDENT VARIABLES: ENTREPRENEURIAL ASPIRATIONS Uses very latest technology (<1 yrs old) Constant (-0.12) Offers products/ services new to all customers 0.40 (0.22) None businesses offer the same product (-0.01) Expects medium job growth (6+ jobs in 5 yrs) (-0.28) Expects high job growth (20+ jobs in 5 yrs) (-0.12) 0.63 (0.15) Export orientation Substantial export orientation (>25%) (-0.73) Necessity motive Independence motive Increase wealth motive 3.86 (0.89) (-0.54) 10.77** (2.42) Entrepreneurial Motivations (0.04) (0.10) (0.64) (-0.04) (0.90) (0.35) ** (1.38) (0.48) (2.16) 0.36 (0.27) 0.56 (0.36) 2.86** (2.07) (-0.30) 4.27 (0.64) 7.90 (1.22) (-0.63) 0.38 (0.20) 1.58 (0.87) R² Observations ***: p<0.01; **: p<0.05; *: p<

13 The model presented in Table 2 may not be complete, since no other explanatory variables or controls are included in the analysis. Therefore, as a next step we include the institutional environment variabels. Results are presented in Table 3. We still do not find a significant impact for the necessity motive and the independence motive. Furthermore, we find that the impact for the increase wealth motive becomes stronger for the use of very latest technology and for medium and high job growth. Also, in contrast to Table 2, we now also find a significant positive impact for the increase wealth motive on our variables for export orientation. Table 3 shows support for a negative influence of social security on entrepreneurial aspirations. As regards GDP per capita we see that there is a significant positive effect on our variables for export orientation, whereas we find no effect on the other aspiration variables. Also note that the effect of GDP per capita and social security interact for the use of very latest technology. The significant negative impact for the interaction term indicates that higher levels of social security lead to less entrepreneurs that use newest technologies when GDP per capita is higher. Table 3 Investigating the impact of Entrepreneurial Motivation on Entrepreneurial Aspirations (including Institutional Environment) DEPENDENT VARIABLES: ENTREPRENEURIAL ASPIRATIONS Uses very latest technology (<1 yrs old) Constant 1.78 (0.60) Offers products/ services new to all customers 2.08 (1.26) None businesses offer the same product 0.56 (0.45) Expects medium job growth (6+ jobs in 5 yrs) (-0.25) Expects high job growth (20+ jobs in 5 yrs) 0.32 (0.32) Export orientation (1-100%) (-0.41) Substantial export orientation (>25%) 0.09 (0.08) Necessity motive Independence motive Increase wealth motive 3.35 (0.81) (-1.02) 11.59*** (2.89) Entrepreneurial Motivations (-0.21) (0.35) (0.93) (-0.50) (0.27) (-0.37) ** (1.64) (0.76) (2.60) 0.81 (0.59) (-0.36) 3.31** (2.48) 5.87 (1.09) (-0.61) 14.32** (2.50) 1.24 (0.82) (-1.13) 3.56** (2.23) GDP Capita 0.01 (0.11) Soc. security -5.18*** contribution (-3.11) rate GDP * Social security -0.41* (-1.98) Institutional Environment (-0.30) (0.47) (0.55) -3.02*** -1.72** -4.76*** (-3.28) (-2.50) (-2.91) (-1.35) (-0.38) (-0.50) 0.01 (0.65) -1.52** (-2.76) (-0.52) 0.18** (2.78) -7.18*** (-3.28) (-1.06) 0.06*** (3.08) -2.08*** (-3.41) (-1.60) R² Observations ***: p<0.01; **: p<0.05; *: p<

14 Since our model may still not be complete, as a next step, in addition to entrepreneurial motivations and institutional environment, we also include socio-economic controls. Table 4 contains the results for this analysis. In contrast to the previous models we now find some impact for the necessity motive. More specifically, it can be seen that the necessity motive has a significant positive impact on high job growth (p<0.10), export orientation (p<0.10) and on substantial export orientation (p<0.05). Furthermore, as was the case in the previous models, we do not find a significant impact for the independence motive on the ambition variables. For the increase wealth motive we find a significant positive impact on the use of very latest technology (p<0.10), on medium and high job growth expectations (P<0.10) and on our export orientation variables (p<0.05). Looking at our indicators for wealth and uncertainty or the institutional environment we find that GDP per capita has a significant positive impact on export orientation (p<0.05) and on substantial export orientation (p<0.01). For the social security contribution rate we find a significant negative impact on all aspiration variables. Note however, that there is also an indirect positive impact of the social security contribution rate on high job growth and export involvement through the necessity motive (see estimation results for equation 1 in Table 1). The interaction variable for GDP per capita and social security has a significant negative impact on the ambition variables uses very latest technologies (p<0.05), offers products/services that are new to all customers (p<0.05), on export orientation (p<0.10) and on substantial export involvement (p<0.01). This implies that for these aspiration variables social security has a stronger negative influence in countries with a higher level of GDP per capita. The results for the R² in Table 4, as compared to Table 3, suggest that the models are better specified when socio-economic controls are included in the analysis. 14

15 Table 4 Investigating the impact of Entrepreneurial Motivation on Entrepreneurial Aspirations (Including Institutional Environment and Socioeconomic controls) DEPENDENT VARIABLES: ENTREPRENEURIAL ASPIRATIONS Uses very latest technology (<1 yrs old) Constant (-0.12) Offers products/ services new to all customers (-1.10) None businesses offer the same product (-1.23) Expects medium job growth (6+ jobs in 5 yrs) (-1.21) Expects high job growth (20+ jobs in 5 yrs) -7.02** (-2.27) Export orientation (1-100%) * (-2.08) Substantial export orientation (>25%) *** (-3.76) Necessity motive Independence motive Increase wealth motive 4.48 (0.93) (-0.82) 8.55* (1.98) Entrepreneurial Motivations (0.64) (0.98) (1.57) (-0.41) (0.76) (-0.22) * (0.54) (-0.04) (1.83) 2.62* (1.95) (-0.29) 2.16* (1.80) 12.41* (2.00) (-0.34) 13.43** (2.27) 3.49** (2.68) (-0.32) 3.08** (2.48) GDP Capita 0.01 (0.10) Soc. security -4.42* contribution (-2.09) rate GDP * Social security -0.49** (-2.15) Institutional Environment (-0.33) (0.76) (0.51) -2.89*** -1.44* -5.12** (-3.05) (-1.80) (-2.53) -0.24** (-2.35) (-1.21) (-1.13) 0.01 (0.64) -1.90*** (-3.24) (-1.58) 0.18** (2.68) -9.05*** (-3.37) -0.52* (-1.75) 0.07*** (4.54) -2.30*** (-4.06) -0.23*** (-3.64) GDP Growth 0.39 (1.01) Tertiary Enrolment 0.02 ratio (0.89) % Population yrs (0.49) Value added in services (% of (-0.51) GDP) Socio-economic controls 0.38** 0.32** 0.51 (2.21) (2.22) (1.39) (1.67) (0.91) (1.19) (2.13) (0.13) (1.46) (-0.28) (0.41) (0.33) 0.22* (2.04) 0.01* (1.81) 0.17** (2.83) 0.02 (0.80) 0.70 (1.37) 0.03 (0.86) 0.53* (1.96) 0.12 (1.30) 0.42*** (3.94) 0.01 (0.81) 0.19*** (3.39) 0.05** (2.43) R² Observations ***: p<0.01; **: p<0.05; *: p<

16 5. Conclusion & Discussion Although many studies focus on aspects of entrepreneurial motivation, little is known about how various entrepreneurial motives affect innovativeness and growth. This paper investigates the impact of different entrepreneurial motivations and institutional conditions on entrepreneurial aspirations in terms of innovativeness and growth ambitions. More specifically, we have investigated: (1) how the institutional environment as expressed by the dimensions wealth and uncertainty is related to entrepreneurial motivations; (2) how entrepreneurial motivations (necessity motive, independence motive and increase wealth motive) are related to entrepreneurial aspirations. Our empirical exercise has shown that especially the increase wealth motive has a positive impact on entrepreneurial aspirations. More specifically, the increase wealth motive is positively associated with the use of very latest technologies, medium and high job growth expectations and export orientation. We find no evidence of an impact on entrepreneurial ambitions for the independence-motivated entrepreneurs, confirming our expectation that these type of entrepreneurs do not tend to have a strong focus on innovation and growth. Also in accordance with our expectations we find that necessity-based entrepreneurs are not so much oriented towards innovation, however, they do tend to contribute to high job growth and export. Furthermore, we find GDP per capita to be positively related to export involvement. We find a negative impact of social security on our ambition variables indicating that when social security systems are more generous start-ups tend to be less oriented towards innovation and growth. We find some indications of direct effects for the institutional environment on entrepreneurial aspirations as well as indirect effects, through entrepreneurial motivation. For example, in case of social security we find two counteracting influences on high job growth and export orientation. We find a direct significant negative impact for social security on high job growth and export involvement, whereas we also find evidence of an indirect positive impact of social security on high job growth and export involvement through the effect of the necessity motive. We will end this paper with some policy proposals directly based on the prime motives for becoming self-employed, i.e. independence, increase wealth, risk-perception and opportunity recognition. Obviously, the type of individual entrepreneurial motivation is not the only factor to consider when designing entrepreneurship policies. Generally speaking, governmental economic policies are constrained by what has become known as the Washington Consensus (e.g., Stiglitz, 2002). In the Entrepreneurial Economy, the uncertainty of the value knowledge exerts a major influence on the shape of government policy. Trial-and-error commercialisation is of primary importance. It is impossible for any government to demand specific outputs, although high growth industries as well as high potential individuals can be targeted. Therefore, the central role of government policy in the Entrepreneurial Economy is enabling in nature. It targets education, increases the skills and human capital of workers, offers help by mentors, facilitates the mobility of workers and their ability to start new firms, lowers administrative burdens for small business and promotes knowledge transfer to innovative new enterprises. 16

17 Enabling, generic policies coincide very well with the characteristics of independence or autonomy as a start-up motive. A wish for autonomy in a work context means that people like to decide when, what, and how they do their work. A strong prevalence of the autonomy motive in the population of (entrepreneur) is tricky for policy makers and difficult to influence. Autonomy is a pull motive strengthened by the level of accumulated wealth (just as individualism correlates positively with wealth). Autonomy-driven individuals prefer to make up their own minds and don t like to be coerced by their government. On the other hand they certainly appreciate facilities that offer training, mentoring, and knowledge transfer, which they can use on their own conditions. While autonomy can be associated both with a big business as well as with a small business, most autonomy driven entrepreneurs do prefer their business to stay small, especially under conditions of wealth and certainty. Thus, as our empirical results suggest, the macroeconomic effects on growth and employment creation will be relatively small. The upside is that autonomy driven entrepreneurship brings about variety. Just because of their autonomy orientation, these entrepreneurs may do things in a slightly different way. In addition, the sheer number of business starters driven by autonomy argues for generic policies. Ten new businesses with one employee create as much employment as one new business with ten employees. For small businesses, a reduction in compliance issues is especially relevant, as these fall proportionally heavy on the (very) small firm. Our empirical results suggest that entrepreneurs that are primarily motivated by increase wealth may in particular contribute to positive macro-economic outcomes in terms of innovation and growth. Policies based on the motivation to acquire material gains and its associated status can be influenced by tax laws. High tax levels, as well as a strong progressive taxation of income tax reduce the incentive for these people to pursue material gains. The more earnings that individuals motivated by material gains can retain, the more incentive there will be for them to engage in entrepreneurship. Reduction of compliance costs and red tape are also integral elements of material gain policies, as they will help to reduce frustration for the materially hungry. The experience of risk is something that can be influenced more directly by policy makers. This can be achieved in several ways. One important element of risk perception policies concern labour laws and social security laws. A higher degree of environmental uncertainty may benefit both level of (more) and type of (innovative) entrepreneurship. More risk and uncertainty in the environment makes starting one s own business comparatively less risky. (Obviously, there may be social reasons to sustain certainty providing labour laws and social security laws). Vice versa, need for financial security, as a negative predictor of entrepreneurial activity, will be more of a deterrent when perceived risk and uncertainty are low. Another element of risk perception policies concern insolvency laws. Less severe sanctions against failure lowers the perceived risk of venturing. Still another element concerns the availability of risk capital. VC s and angels willing to take part in entrepreneurial ventures will also help the entrepreneur to lower risks. Finally, there are policies for opportunity recognition. Governments in knowledge economies can create opportunities by funding technology development and knowledge creation in general, and especially knowledge transfer and dissemination. Diversity is another key concern. This applies to people, for example, to have a working population that is diverse in terms of ideas and knowledge, as can be targeted by immigration policies. Diversity is also brought about when people interact. Therefore the facilitation of networks is important, and even the 17

18 planological layout of cities (Jacobs, 1965). Fostering international connections is also an important part of opportunity recognition policies. The empirical part of this study has a number of limitations, such as the small sample size and the cross-sectional nature of the analysis. Furthermore, we were only able to take into account a limited number of motives currently measured as part of the GEM-project. However, the significant relationships between country-level institutional environment variables and the type of individual-level motivation on the one hand, and type of individual-level motivation and firm-level aspirations on the other hand, show the potential for motivation based policies for an entrepreneurial EU economy. 18

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21 The results of EIM's Research Programme on SMEs and Entrepreneurship are published in the following series: Research Reports and Publieksrapportages. The most recent publications of both series may be downloaded at: Recent Research Reports and Scales Papers H Export Orientation among New Ventures and Economic Growth H Institutionele voorwaarden voor zelfstandig ondernemerschap H Creative Destruction and Regional Competitiveness H Entrepreneurship, Dynamic Capabilities and New Firm Growth H Determinants of self-employment preference and realization of women and men in Europe and the United States H Is human resource management profitable for small firms? H The entrepreneurial ladder and its determinants H Knowledge Spillovers and Entrepreneurs Export Orientation H The effects of new firm formation on regional development over time: The case of Great Britain H On the relationship between firm age and productivity growth H Entrepreneurship and its determinants in a crosscountry setting H The Geography of New Firm Formation: Evidence from Independent Start-ups and New Subsidiaries in the Netherlands H PRISMA-K: een bedrijfstakkenmodel voor de korte termijn H PRISMA-M: een bedrijfstakkenmodel voor de middellange termijn H PRISMA-MKB: modelmatige desaggregatie van bedrijfstakprognose naar grootteklasse H PRISMA-R: modelmatige desaggregatie van bedrijfstakprognoses naar provincie H Explaining engagement levels of opportunity and necessity entrepreneurs H The effect of business regulations on nascent and Young business entrepreneurship H High growth entrepreneurs, public policies and economic growth H The decision to innovate H Innovation and international involvement of Dutch SMEs H Uncertainty avoidance and the rate of business ownership across 21 OECD countries, H The Impact of New Firm Formation on Regional Development in the Netherlands H An Ambition to Grow H Exploring the informal capital market in the Netherlands: characteristics, mismatches and causes H SMEs as job engine of the Dutch private economy N High Performance Work Systems, Performance and Innovativeness in Small Firms N Entrepreneurial Culture as Determinant of Nascent Entrepreneurship N Social security arrangements and early-stage entrepreneurial activity; an empirical analysis N Determinants of Growth of Start-ups in the Netherlands N Entrepreneurship in the old en new Europe 21

22 N Entrepreneurial engagement levels in the European Union N Latent and actual entrepreneurship in Europe and the US: some recent developments N Determinants of self-employment preference and realisation of women and men in Europe and the United States N PRISMA-K: een bedrijfstakkenmodel voor de korte termijn N Strategic Decision-Making in Small Firms: Towards a Taxonomy of Entrepreneurial Decision-Makers N Explaining female and male entrepreneurship at the country level N The link between family orientation, strategy and innovation in Dutch SMEs: a longitudinal study N From nascent to actual entrepreneurship: the effect of entry barriers N Do entry barriers, perceived by SMEs, affect real entry? Some evidence from the Netherlands H The Impact of New Firm Formation on Regional Development in the Netherlands N Entrepreneurial intentions subsequent to firm exit N The relationship between successor and planning characteristics and the success of business transfer in Dutch SMEs H Product introduction by SMEs H Kosten van inhoudelijke verplichtingen voor het bedrijfsleven N Does Self-Employment Reduce Unemployment? N Zipf's Law in Economics N Early-stage entrepreneurial activity in the European Union: some issues and challenges N Scale effects in HRM Research H Aantallen ondernemers en ondernemingen H Armoede onder zelfstandige ondernemers H How do firms innovate? H Perception of competition : A measurement of competition from the perspective of the firm H Arbeidsproductiviteit in de Nederlandse dienstensector H Verklaren en voorspellen van naleving: uitwerking van een ex ante schattingsmethode H Explaining variation in nascent entrepreneurship H Academic entrepreneurship : a source of competitive advantage H How can leaders trigger bottom-up innovation? H Transforming an idea into a strategic decision in SMEs H Business dynamics and employment growth: A crosscountry analysis H The National Systems of Innovation Approach and Innovation by SMEs H Understanding the Role of Willingness to Cannibalize in New Service Development H Factors influencing export development of Dutch manufactured products 22