What Motivates Entrepreneurial Entry Under Economic Inequality? The Role of Human and Financial Capital

Human Relations, Forthcoming

44 Pages Posted: 27 Mar 2015

See all articles by Emanuel Xavier-Oliveira

Emanuel Xavier-Oliveira

Michigan Technological University - School of Business & Economics

Andre Laplume

Michigan Technological University

Saurav Pathak

Michigan Technological University

Date Written: February 2015

Abstract

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

Xavier-Oliveira, Emanuel and Laplume, Andre and Pathak, Saurav, What Motivates Entrepreneurial Entry Under Economic Inequality? The Role of Human and Financial Capital (February 2015). Human Relations, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2585021

Emanuel Xavier-Oliveira (Contact Author)

Michigan Technological University - School of Business & Economics ( email )

Houghton, MI 49931
United States

Andre Laplume

Michigan Technological University ( email )

Houghton, MI 49931
United States

Saurav Pathak

Michigan Technological University ( email )

Houghton, MI 49931
United States

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