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Title of Journal: Small Bus Econ

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Entrepreneurship, export orientation, and economic growth

Authors: Jolanda Hessels, André van Stel,

Publish Date: 2009/10/23
Volume: 37, Issue:2, Pages: 255-268
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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 export-driven 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 export-oriented early-stage entrepreneurship in higher-income countries. However, there is no such additional effect in lower-income countries.This 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 growth.First, we aim to contribute to the literature on export and economic growth by examining the role of export-oriented new ventures in economic growth. Export revenues play an important role in achieving economic growth in both low- and high-income 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 start-ups 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 export-oriented new ventures and national economic growth.Second, 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 start-up 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 (i.e., a large number of different new ideas being pursued) and selection will be more intense. From an economy-wide point of view this higher intensity increases the probability of actual innovations taking place (i.e., 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, e.g., 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 growth.Third, 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 export-oriented 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 export-oriented new ventures that reach further than the firms’ own performance (economy-wide effects in terms of spillover effects, higher levels of competition, and increased diversity).Our empirical analysis uses data for 34 countries that have participated in the Global Entrepreneurship Monitor between 2002 and 2005.1 We make a distinction between two groups of countries: higher-income countries and lower-income 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 early-stage ventures.The 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 export-oriented new ventures) and national economic growth. Finally, in Sect. 5 we discuss the outcomes and draw some conclusions.The 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 early-stage 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 early-stage 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 high-potential 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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