Does Inequality Foster or Hinder the Growth of Entrepreneurship in the Long-Run?

CGR Working Paper No. 83

50 Pages Posted: 18 Oct 2017

See all articles by Roxana Gutierrez-Romero

Roxana Gutierrez-Romero

Queen Mary University of London

Luciana Méndez-Errico

University of Barcelona - Department of Applied Economics

Date Written: January 17, 2017

Abstract

This article assesses the extent to which historical levels of inequality affect the creation and survival of businesses over time. To this end, we use the Global Entrepreneurship Monitor (GEM) survey across 66 countries over 2005–2011. We complement this survey with data on income inequality dating back to early 1800s and current institutional environment, such as the number of procedures to start a new business, countries’ degree of financial inclusion, corruption and political stability. We find that although inequality increases the number of firms created out of need, inequality reduces entrepreneurial activity as in net terms businesses are less likely to be created and survive over time. These findings are robust to using different measures of inequality across different points in time and regions, even if excluding Latin America, the most unequal region in the world. Our evidence then supports theories that argue early conditions, crucially inequality, influence development path.

Keywords: Inequality; Entrepreneurship; Panel Data; Instrumental Variables

JEL Classification: M2; O1; D3; C23

Suggested Citation

Gutierrez-Romero, Roxana and Méndez-Errico, Luciana, Does Inequality Foster or Hinder the Growth of Entrepreneurship in the Long-Run? (January 17, 2017). CGR Working Paper No. 83 . Available at SSRN: https://ssrn.com/abstract=3054752 or http://dx.doi.org/10.2139/ssrn.3054752

Roxana Gutierrez-Romero (Contact Author)

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom

HOME PAGE: http://https://roxanagutierrez.wordpress.com/

Luciana Méndez-Errico

University of Barcelona - Department of Applied Economics ( email )

Bellaterra
Spain

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