Education and Entrepreneurial Choice: An Instrumental Variables Analysis

Abstract

Education is argued to be an important driver of the decision to start a business. The measurement of its influence, however, is difficult since it is considered to be an endogenous variable. This study accounts for this endogeneity by using an instrumental variables approach and a data set of more than ten thousand individuals from 27 European countries and the US. The effect of education on the decision to become self-employed is found to be strongly positive, much higher than the estimated effect in case no instrumental variables are used. That is, the higher the respondent’s level of education, the greater the likelihood that he/she starts a business. Implications for entrepreneurship research and practice are discussed.

Keywords: Occupational choice, entrepreneurial choice, education, self-employment, endogeneity, instrumental variables, entrepreneurship

JEL Classification: C35, I20, J24, L26