Objectives
The objective of this study is to examine how the likelihood of starting a business changes with personal income and with country income.
Data/Methods:
We use data from the Global Entrepreneurship Monitor (GEM) dataset, which covers 392,749 individuals between 2001 and 2005, and 43 developed and developing countries. In this dataset we can identify individuals that are planning to start a business or are managing a new venture. In addition, in the dataset individuals are classified into one of three relative income categories: among the third poorest - individuals who report income in the lowest 33rd income percentile of their country’s income distribution, in the middle income third, and among the third richest. Also, each individual is located in one of the 43 countries, which can be coded according to the World Bank classification as Low Income, Lower-Middle Income, Upper Middle Income, and Rich countries.We use the data as described above to compute rates of entrepreneurial activity for each individual income/country income pair, and then conducted a difference in means test to determine whether differences across income categories are significant.
Results:
We show that the likelihood of an individual starting a business rises with personal income – whatever the country income class - but decreases with country income – whatever the relative personal income class. This twin facts need to be jointly explained by any model that aims at an explanation of the main determinants of entrepreneurship.