Long-Term Effects of Shocks on New Opportunity and Necessity Entrepreneurship

40 Pages Posted: 19 Apr 2024

See all articles by Emilio Congregado

Emilio Congregado

University of Huelva

Frank M. Fossen

University of Nevada, Reno; IZA Institute of Labor Economics

Nicola Rubino

University of Rome Tor Vergata

David Troncoso

University of Seville

Abstract

The dynamics of startup activity are crucial for job creation, innovation, and a competitive economy. Does regional firm formation exhibit hysteresis, such that shocks, including those induced by temporary policy interventions, have permanent effects? Due to the pronounced heterogeneity among new entrepreneurs, it is important to distinguish between those pulled by opportunity and those pushed by necessity. This distinction allows evaluating the long-term effects of policies aimed at stimulating opportunity entrepreneurship versus active labor-market policies supporting self-employment as a way out of unemployment. Based on 84 waves of quarterly microdata from the Spanish Labor Force Survey, we create time series of new opportunity and new necessity entrepreneurship for the 17 Spanish regions. To test whether exogenous shocks have long-run effects on firm formation, we apply a battery of panel data and time series unit root tests accounting for deterministic breaks. We also present results for the different Spanish regions and industrial sectors. We find that hysteresis is more widespread in new opportunity than in new necessity entrepreneurship, implying that shocks and temporary policies are more likely to shift opportunity than necessity entrepreneurship in the long run. Moreover, we document that the global Financial Crisis of 2008 changed the technology of firm formation out of opportunity, but not out of necessity. Our analysis opens the door to further research on the long-term effectiveness of a regional and sectoral policy mix of entrepreneurship promotion and active labor market policies.

Keywords: self-employment, opportunity entrepreneurship, necessity entrepreneurship, firm formation, hysteresis, stationarity, regions

JEL Classification: C32, E23, J24, L26, M13

Suggested Citation

Congregado, Emilio and Fossen, Frank M. and Rubino, Nicola and Troncoso, David, Long-Term Effects of Shocks on New Opportunity and Necessity Entrepreneurship. IZA Discussion Paper No. 16930, Available at SSRN: https://ssrn.com/abstract=4800267 or http://dx.doi.org/10.2139/ssrn.4800267

Emilio Congregado (Contact Author)

University of Huelva ( email )

Departament of Economics
Plaza de la Merced, 11
Huelva, Huelva 21002
Spain

HOME PAGE: http://www.uhu.es/emilio.congregado

Frank M. Fossen

University of Nevada, Reno ( email )

1664 N. Virginia Street
Reno, NV 89557-0030
United States

HOME PAGE: http://business.unr.edu/faculty/ffossen/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=2906

Nicola Rubino

University of Rome Tor Vergata

Via di Tor Vergata
Rome, 00133
Italy

David Troncoso

University of Seville

Avda. del Cid s/n
Sevilla, 41004
Spain

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