Illegal Entrepreneurship Experience

Abstract:     
Existing studies show a positive relationship between business development and conventional human capital as measured by formal education attainment, previous business experience and prior management experience. In this paper, we explore whether illegal entrepreneurship experience (IEE), an unconventional form of human capital, is related to the performance and motivation of existing legal businesses in a transition context. Based on data from 399 private business owners in Lithuania, our regression results indicate that IEE is significantly associated with subjective measures of business motivation. It is likely that the more motivated and enthusiastic entrepreneurs started as soon as possible or even earlier and have maintained their motivation throughout. An objective performance measure, i.e. business turnover, is affected by IEE for certain groups of entrepreneurs. Especially younger and more highly educated entrepreneurs with IEE have proven to be able to convert and apply their IEE to a market oriented setting. These results, therefore, do partly support the notion that prior experience in the black or gray market under a centrally planned economic system may provide valuable human capital for entrepreneurs in a more open-market oriented setting. We conclude that IEE is productive for specific types of entrepreneurs and that it can more generally be seen as a selection device for motivated entrepreneurs.

Number of Pages in PDF File: 37

Keywords: Entrepreneurship, human capital, illegal entrepreneurship, transition economy

JEL Classification: J21, J23, J24, J49, L25, M13, O17, P31

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