Uncertainty Avoidance and the Rate of Business Ownership Across 21 OECD Countries, 1976-2004

Abstract

Persistent differences in the level of business ownership across countries have attracted the attention of scientific as well as political debate. Cultural as well as economic influences are assumed to play a role. This paper deals with the influence of cultural attitudes towards uncertainty on the rate of business ownership across 21 OECD countries. First, the concepts of uncertainty and risk are elaborated, as well as their relevance for entrepreneurship. An occupational choice model is introduced to underpin our reasoning at the macro-level. Second, regression analysis using pooled macro data for 1976, 1990 and 2004 and controlling for several economic variables, yields evidence that uncertainty avoidance is positively correlated with the prevalence of business ownership. According to our model, a restrictive climate of large organizations in high uncertainty avoidance countries pushes individuals striving for autonomy towards self-employment. Regressions for these three years separately show that in 2004, this positive correlation is no longer found, indicating that a compensating pull of entrepreneurship in countries with low uncertainty avoidance may have gained momentum in recent years. Third, an interaction term between uncertainty avoidance and GDP per capita in the pooled panel regressions shows that the historical negative relationship between GDP per capita and the level of business ownership is substantially weaker for countries with lower uncertainty avoidance. This suggests that rising opportunity costs of self-employment play a less important role in this cultural environment, or are being compensated by increasing entrepreneurial opportunities.

Keywords: Entrepreneurship, Business Ownership, Comparative Analysis of Economies, Cross Country Study, Cultural Economics, Uncertainty Avoidance