What Drives the Creation of New Businesses? A Panel-Data Analysis for EU Countries

ABSTRACT

Our article aims to identify the key factors that affect the establishment of new businesses in 18 developed and emerging member countries in the European Union over the period 2003–2015. Using panel-data estimation techniques, we alternatively assess the effects of some macroeconomic, demographic, individual, and business environment-related factors on the dynamics of new firm creation, proxied by the rates of nascent entrepreneurship and entrepreneurial intentions. The results show that macroeconomic and demographic variables are the most significant determinants, followed by the individual characteristics of potential entrepreneurs and of the business environment. In addition, the sovereign debt crisis in Europe in 2010 positively affected entrepreneurship through increased support for new firms by individual country governments and the European Union.

KEY WORDS:

• determinants of starting a new business
• entrepreneurial intentions
• nascent entrepreneurship
• new businesses
• panel-data analysis

JEL CLASSIFICATION:

• L26
• M13
• C33

Notes

^1. Based on the motivation for starting a new business, the GEM methodology distinguishes between two other types of entrepreneurship, namely, opportunity-driven and necessity-driven entrepreneurship (see http://www.gemconsortium.org/wiki/1150/; Kelley, Singer, and Herrington 2016). Whereas opportunity-driven entrepreneurs decide to start up a firm to take advantage of a business opportunity, the latter are motivated by not having better employment choices. However, this distinction is beyond the scope of our study.

^2. In this section, we only refer to studies on intentional and nascent entrepreneurship (corresponding to the first two stages of the entrepreneurial process), which are the subject of our research.

^3. We used a routine (-xttest3-) developed for Stata by Baum (2001), following Greene (2000).

^4. Implemented with the -xtscc- command, developed for Stata by Hoechle (2007).

^5. One interesting result of this exercise was that the coefficients of all time dummies were found to be negative until 2010 and positive afterward, for both the models with NER and EINT as dependent variables. This came as a confirmation of our finding that crisis 1 is a relevant explanatory variable.

^6. Because theoretical and empirical studies on entrepreneurship identify a large variety of potential determinants of starting new businesses, we had to be selective about which explanatory variables to include in our baseline models. Although we considered some other variables, extensively discussed in the literature, we decided to drop them either because of large data gaps or because they did not turn out to have the expected sign or to be significant. However, we used these variables to test the robustness of our model against the consideration of additional regressors as determinants of our entrepreneurial variables.