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

ISBN: 978-1-78714-522-1, eISBN: 978-1-78714-521-4

Publication date: 10 October 2017

Abstract

This chapter 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 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 in 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.

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Acknowledgements

Acknowledgment

We acknowledge financial support from the Spanish Ministry of Science and Innovation (reference ECO2010-21668-C03-02 and ECO2013-46516-C4-1-R) and from the Generalitat of Catalunya (reference 2014SGR-1279). We thank Fabrice Murtin for having shared with us the historical estimators on income distribution shown in this chapter. We thank Isabel Busom, Cristina López-Mayan, Adam Pepelasis, Xavi Ramos, Francesc Trillas and the participants of the EDIE workshop, the GEM-Barcelona conference, UAB PhD seminar, Universidad Tecnológica Metropolitana de Mérida, the LACEA/IADB/WB/UNDP Research Network of Inequality and Poverty for their comments and suggestions on earlier drafts of this chapter.

Citation

Gutiérrez-Romero, R. and Méndez-Errico, L. (2017), "Does Inequality Foster or Hinder the Growth of Entrepreneurship in the Long Run?", Bandyopadhyay, S. (Ed.) Research on Economic Inequality (Research on Economic Inequality, Vol. 25), Emerald Publishing Limited, Leeds, pp. 299-341. https://doi.org/10.1108/S1049-258520170000025009

Publisher

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Emerald Publishing Limited