What Motivates Entrepreneurial Entry Under Economic Inequality? The Role of Human and Financial Capital
Human Relations, Forthcoming
44 Pages Posted: 27 Mar 2015
Date Written: February 2015
Based on a multilevel analysis of nearly 120,000 observations across 31 countries between 2001 and 2008, we provide novel insights into the moderating effects that economic inequality may have on the distinct roles that human and financial capital play on different types of entrepreneurship. As inequality increases, both forms of capital become weaker deterrents of entry into necessity entrepreneurship, whereas for opportunity entrepreneurship, only financial capital becomes a stronger predictor of entry. We also show that, regardless of inequality levels, both human and financial capital exhibit decreasing marginal returns on the likelihood of entry into necessity entrepreneurship, and that in the case of opportunity entrepreneurship, financial capital exhibits increasing marginal returns. However, inequality does impact the magnitude of marginal returns. Additionally, our statistical analysis provides quantitative support to extant literature arguing that higher levels of economic inequality foster both types of entrepreneurship albeit having a stronger impact on necessity entrepreneurship, and that human and financial capital have distinct effects on entry into necessity versus opportunity entrepreneurship. All these findings have pertinent policy implications and shed light on the under-researched role of inequality on entrepreneurship.
Keywords: education, entrepreneurship, financial capital, human capital, income, inequality, marginal returns, motivation, multilevel analysis, necessity, opportunity.
JEL Classification: L26, O16, J24, D24
Suggested Citation: Suggested Citation