‘Recession push’ and ‘prosperity pull’ entrepreneurship in a rural developing context

Abstract

In this paper, the ‘recession push’ and the ‘prosperity pull’ hypotheses are used to analyse the effect of growing non-farm wage employment on entrepreneurship in a rural developing context. Data are collected in a rural household survey in 110 communes in central Vietnam which includes subjective owner assessments of reasons for starting non-farm businesses. This way it is possible to separately test the two hypotheses by distinguishing opportunity and necessity entrepreneurs. We use clustered probit regression analyses and control for possible endogeneity in order to predict participation in entrepreneurship. The results show that better access to non-farm wage employment increases the likelihood of becoming an opportunity entrepreneur but has no effect on necessity entrepreneurship. This, therefore, supports the ‘prosperity pull’ hypothesis but not the ‘recession push’ hypothesis. The growing non-farm economy is likely to accelerate the emergence of opportunity entrepreneurship in rural areas. However, necessity entrepreneurs are suffering from a lack of individual and household assets which pushes them into entrepreneurship regardless of non-farm job opportunities in the surrounding area.

Keywords:

• recession-push
• necessity entrepreneurship
• self-employment
• Vietnam
• rural development

Acknowledgements

The authors would like to thank the German Research Foundation for providing funding for our research. In addition we would like to thank everyone involved in conducting the surveys. We would also like to thank Tom Brökel and the participants of the IGU mini conference in Vechta for their valuable comments and suggestions.

Notes

Notes

1. The non-farm economy is often better developed in proximity to larger villages, towns, cities, or close to major infrastructures such as roads or ports, where businesses benefit from different types of agglomeration economies. In addition, some rural areas also rely on a place-specific non-agricultural economic base, such as mining, production of raw materials, or tourism (Hazell, Haggblade, and Reardon 2007).

2. Due to attrition, the household sample reduced from 2195 households in 2007 to 2136 in 2008 and 2099 in 2010. The minimum number of households per commune decreased to 15 (mean 19.1; median 19.0). The sampling was designed according to the guidelines of the UN Department of Economic and Social Affairs. It was arranged in a three stage procedure. The first stage had to be designed with respect to different agro-ecological zones (coastal, mountain and rice plain area) in order to avoid insufficient sample sizes in some of these zones (Hardeweg et al. 2007).

3. Participation increased from 8.6% in 2007 to 8.8% in 2008 and 10.4% in 2010. These numbers are low compared to official statistics that show that 19.3% of the Vietnamese population above 15 years were engaged in non-farm self-employment in 2008 (General Statistics Office 2009). However, in rural regions, the proportion working in non-farm self-employment is always significantly lower.

4. We only included this extra module in a subsample of households to keep time and costs to a minimum. To generate the subsample, households were randomly selected within each village in order to maintain a consistent geographical structure within the data.

5. Other common reasons are that the household member is too old to pursue any other occupation (necessity reasons) or that the owner simply enjoys doing this type of business (opportunity reason).

6. These businesses are thus excluded from the analyses in this paper.

7. In addition, being an opportunity and being a necessity entrepreneur is theoretically not mutually exclusive because one person can theoretically own two differently motivated businesses.

8. Because the member himself influences the commune-level mean.

9. Again we follow the example of Isgut (2004) who also estimates cluster averages which exclude the individual's household.