Regional Entrepreneurial Heritage in a Socialist and a Postsocialist Economy

Abstract

Regions have a distinct entrepreneurial heritage, understood as a historical tradition in entrepreneurial culture. The persistence of that heritage in the former German Democratic Republic (GDR) is examined across severe ruptures in economic development. In this article, I argue that regional differences in private-sector activities under socialism—a system that was hostile toward entrepreneurs—reflect strong entrepreneurial orientations of local populations and regional cultures of entrepreneurship that were presocialist in origin. The empirical analysis suggests that an “entrepreneurial residual,” left over from the socialist experiment, positively affected startup activity after the transformation of the GDR back to a market economy. The results show that an entrepreneurial culture is an important regional resource that endures.

• entrepreneurial culture
• transition
• regional development

Acknowledgments

I am indebted to Michael Fritsch, Saras Sarasvathy, and L. Carlos Freire-Gibb, as well as the colleagues of the “Chair of Business Dynamics, Innovation, and Economic Change”; participants in the DRUID-DIME Winter Academy 2010 in Aalborg; and three anonymous referees for their helpful comments and suggestions. The paper was a runner-up for the DRUID winter conference’s most promising research project award in 2010. Funding by the German Science Foundation is gratefully acknowledged.

Notes

Survey evidence, although not regionally differentiated, shows that there were different individual responses to the hostile private-sector policy in the GDR, reflecting variation in individual entrepreneurial orientation (Pilleul-Arp ).

Special thanks to Dr. Rupert Kawka for providing these adjusted data.

Since startup rates can take only positive values, Tobit regressions were applied as well. The results in terms of significance levels changed only slightly and can be obtained upon request.

The share of service employment was insignificant in the negative binomial regression displayed in the appendix, since in count-data models, the analysis controls for the size of the workforce. The number of potential entrepreneurs (either employed or unemployed) presumably dominates the effect of industry structure.

In a separate analysis, the interaction of migration and the SER 1989 was tested. It may be that regions with a strong entrepreneurial culture have higher startup rates, yielding economic prosperity and, in turn, attracting people, which may reinforce startup activity. The interaction effect of both variables is insignificant, however.

The results are available from me on request.