Journal Title
Title of Journal: Small Bus Econ
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Abbravation: Small Business Economics
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Authors: Jolanda Hessels André van Stel
Publish Date: 2009/10/23
Volume: 37, Issue: 2, Pages: 255-268
Abstract
In this paper the relationship between a country’s prevalence of new ventures and its rate of economic growth is investigated while taking into account new ventures’ export orientation It is generally acknowledged that new venture creation as well as export activity may both be important strategies for achieving national economic growth However to our knowledge no attempt has been made to investigate empirically the role of exportdriven new ventures in economic growth We focus on the national level and use data for a sample of 34 countries over the period 2002–2008 Our results suggest that on top of a positive relation between entrepreneurial activity in general and subsequent macroeconomic growth there is an additional positive effect of exportoriented earlystage entrepreneurship in higherincome countries However there is no such additional effect in lowerincome countriesThis paper investigates the relationship between a country’s prevalence of new venture creation activity and its rate of economic growth taking into account new ventures’ export orientation We aim to contribute to three streams of literature 1 the literature on export and economic growth 2 the literature on entrepreneurship in terms of new venture creation and economic growth and 3 the literature on new venture internationalization and growthFirst we aim to contribute to the literature on export and economic growth by examining the role of exportoriented new ventures in economic growth Export revenues play an important role in achieving economic growth in both low and highincome countries Exports are crucial for the economic development of nations Almeida Couto et al 2006 Girma et al 2004 Lages and Montgomery 2004 Exports have a positive impact on the national amount of foreign exchange reserves and on national prosperity and contribute to the development of national industries to improved productivity and to the creation of employment It is a stylized fact that on average exporting firms perform better than nonexporting firms in particular they tend to be more productive more capital intensive more innovative and more efficient Clerides et al 1998 Girma et al 2004 Kneller and Pisu 2007 However previous research with respect to the importance of export for national economies has strongly focused on established corporations and large multinational enterprises and has paid less attention to the role of startups in international markets Audretsch and Thurik 2000 In this study we attempt to address this gap by examining the relationship between a country’s prevalence of exportoriented new ventures and national economic growthSecond it is our aim to contribute to the literature on new venture creation and economic growth by explicitly considering new ventures’ export orientation Entrepreneurship which involves the creation or startup of new ventures Gartner 1985 is considered to be an important mechanism of economic development Baumol 2002 Carree and Thurik 2003 Schumpeter 1934 Wennekers and Thurik 1999 and for developing competitive economies Hawkins 1993 Audretsch and Keilbach 2004 argue based on empirical studies as well as theoretical arguments that entrepreneurship contributes to economic growth through knowledge spillovers increased competition and increased diversity In particular entrepreneurs contribute to a process of variety and selection whereby many individual entrepreneurs pursue an observed market opportunity and try to economically exploit a new idea However due to increased uncertainty in the global knowledge economy it is not clear a priori which of these different new ideas are economically viable Audretsch and Thurik 2000 Only after setting up a new business do entrepreneurs find out what consumers prefer and hence whether their new ideas are economically viable Most of these new ideas will not be economically viable but some of them will be The successful ideas often turn into innovations When there are more entrepreneurs pursuing new ideas the level of competition is higher and the process of variety ie a large number of different new ideas being pursued and selection will be more intense From an economywide point of view this higher intensity increases the probability of actual innovations taking place ie of economically viable ideas being “selected” through the market Thus entrepreneurs are important for introducing or generating innovations Autio 1994 Acs and Audretsch 2003 Several empirical studies confirm a positive relationship between entrepreneurship in terms of new venture creation and national economic growth for developed countries see eg van Stel 2006 We expect that in investigating the relationship between new venture creation and economic growth it is relevant to take into account new ventures’ export orientation In particular the present paper builds on the assumption that exporting new ventures develop specific skills including human capital and innovative skills through their export activity and consequently a high number of exporting new ventures may be even more conducive to the process of variety and selection described above compared with high numbers of domestically operating new ventures In other words high numbers of exporting new ventures may be of specific importance for generating knowledge spillovers and may have a particularly strong impact on competition and innovation and subsequently on economic growthThird we aim to extend the literature on new venture internationalization and growth by focusing on the country level Within the field of entrepreneurship there is increased attention on international new ventures including exportoriented new ventures Knight and Cavusgil 1996 McDougall 1989 Oviatt and McDougall 1994 Research on international new ventures was spurred by the finding that international new ventures differ significantly from domestic new ventures in terms of their strategy profile and industry structure McDougall 1989 Furthermore interest in international new ventures has also increased because it has been observed that the number of international new ventures is increasing in many different countries around the world Moen and Servais 2002 Oviatt and McDougall 1994 Rennie 1993 and such ventures are thought to be of importance in terms of innovation and employment Moen 2002 However only a few empirical studies have investigated the effect of exports on new ventures’ business performance Bloodgood et al 1996 McDougall and Oviatt 1996 Zahra et al 2000 and those that did investigated the link at the micro level Whereas it is widely believed that internationally oriented new ventures are important in terms of national economic growth Moen 2002 to our knowledge this link has not been investigated empirically This may partly be due to the lack of data in particular international comparative statistics concerning the export activity of new firms at the country level In order to contribute to this gap in research the focus in this study will be on investigating the link between a country’s prevalence of new ventures that are oriented toward exports and its rate of economic growth The advantage of using the country or macro level is that it is possible to capture indirect effects of exportoriented new ventures that reach further than the firms’ own performance economywide effects in terms of spillover effects higher levels of competition and increased diversityOur empirical analysis uses data for 34 countries that have participated in the Global Entrepreneurship Monitor between 2002 and 20051 We make a distinction between two groups of countries higherincome countries and lowerincome countries Our model is derived from a model that has been developed by van Stel et al 2005 for linking new venture creation to economic growth In the current paper we extend this model by considering the additional impact on growth of new ventures’ export orientation The Global Entrepreneurship Monitor data set provides a first attempt to collect international comparative data on the export orientation of a country’s earlystage venturesThe paper is structured as follows A review of the literature and the development of our hypotheses are presented in Sect 2 Next in Sect 3 we will describe the data and the research method used for the empirical analysis In Sect 4 we present the results of our empirical analysis of the association of the presence of new ventures domestic new ventures and exportoriented new ventures and national economic growth Finally in Sect 5 we discuss the outcomes and draw some conclusionsThe financial merits of export at the firm level are well reported in literature For example it is widely acknowledged that exports are important for expanding sales achieving business growth and improving financial performance Daniels and Bracker 1989 Edmunds and Khoury 1986 Zahra et al 1997 It is believed that new ventures may benefit from exporting in terms of improving a venture’s competitive performance financial performance and growth Oviatt and McDougall 1997 Zahra et al 1997 The new venture internationalization model suggests that internationalization is necessary for ensuring opportunities for firm growth Oviatt and McDougall 1994 However empirical research on international activities of new ventures has focused mainly on antecedents of earlystage international activity in trying to explain the emergence of internationally oriented new firms or the early internationalization of firms Zahra 2005 Only a few empirical studies have focused on identifying economic contributions of earlystage firms in terms of growth and profitability Bloodgood et al 1996 McDougall and Oviatt 1996 Zahra et al 2000 These studies find only weak evidence for a positive link between internationalization and performance for example Bloodgood et al 1996 who focused on 61 highpotential new ventures in the USA found that internationalization was significantly but only marginally related to earnings after 2 years and was not related to sales growth McDougall and Oviatt 1996 found for their sample of 62 US new venture manufacturers in the computer and communications equipment industries that higher levels of export sales were related to higher relative market share 2 years later but they did not find evidence of a direct significant relation between percentage of foreign sales and subsequent return on investment Because of this weak empirical foundation more research is needed on the direct as well as indirect effects of new ventures’ international operations on economic performance Zahra et al 2000
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- Who instigates university–industry collaborations? University scientists versus firm employees
- How SMEs exploit their intellectual property assets: evidence from survey data
- Firm size, age, industrial networking, and growth: a case of the Korean manufacturing industry
- Size matters: entrepreneurial entry and government
- Entrepreneurship, developing countries, and development economics: new approaches and insights
- Effect of the Number of Banking Relationships on Credit Availability: Evidence from Panel Data of Spanish Small Firms
- Identity and entrepreneurship: do school peers shape entrepreneurial intentions?
- Entrepreneurship and innovation networks
- Effectiveness of R&D tax incentives in small and large enterprises in Québec
- The impact of family ownership on innovation: evidence from the German machine tool industry
- Microfinance, subsidies and local externalities
- Risk, balanced skills and entrepreneurship
- Private Firms and Corporate Governance: An Integrated Economic and Management Perspective
- Ageing and entrepreneurial preferences
- Entrepreneurial skills and workers’ wages in small firms
- Where are all the self-employed women? Push and pull factors influencing female labor market decisions
- Nascent entrepreneurship panel studies: progress and challenges
- Performance of small- and medium-sized enterprises in services trade: evidence from French firms
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