Entrepreneurship

Entrepreneurship is an important lever for spurring transition in the economies of the former Soviet Union and Central and Eastern Europe. Utilizing diversity, in terms of religion or gender, can positively affect entrepreneurial development. Programs that encourage entrepreneurial initiatives (such as business start-ups) in culturally diverse localities should rank high on the policy agenda. Prompting women to start a business, along with female-friendly measures (including targeted legislation), can positively affect entrepreneurial behaviour and the performance of existing enterprises.

Female-led ventures that are market-expanding, export-oriented, and innovative contribute substantially to local and national economic development, as well as to the female entrepreneur’s economic welfare. Female-led ventures also serve as models that can encourage other high-potential female entrepreneurs. The supply of high-potential entrepreneurial ventures is driven by individuals’ entrepreneurial attitudes and institutional factors associated with a country’s conditions for entrepreneurial expansion. A systematic assessment of those factors can show policymakers the strengths and weaknesses of the environment for high-potential female entrepreneurship.

Corporate income taxation influences the quantity and type of entrepreneurship, which in turn affects economic development. Empirical evidence shows that higher corporate income tax rates reduce business density and entrepreneurship entry rates and increase the capital size of new firms. The progressivity of tax rates increases entrepreneurship entry rates, whereas highly complex tax codes reduce them. Policymakers should understand the effects and underlying mechanisms that determine how corporate income taxation influences entrepreneurship in order to provide a favorable business environment.

Family and kinship networks are important in helping people get jobs and start companies, as statistics for developing countries show. Promising new research has begun to assess the positive and negative effects of these family and kinship ties on entrepreneurial success. To what extent, and why, are family networks used, and do they result in better economic outcomes for entrepreneurs? Results point to the need for policymakers to identify and emulate efficient informal networks in order to develop innovative support policies for vulnerable entrepreneurs, especially for those who are attached to weak or inefficient networks.

Supportive institutional environments help build the foundations for innovative and productive entrepreneurship. A few post-Soviet countries have benefitted from international integration through EU membership, which enabled the development of democracy and free market principles. However, many post-Soviet economies continue to face high levels of corruption, complex business regulations, weak rule of law and uncertain property rights. For them, international integration can provide the needed support to push through unpopular yet necessary stages of the reform process.

Entrepreneurs are a rare species. Even in innovation-driven economies, only 1–2% of the work force starts a business in any given year. Yet entrepreneurs, particularly innovative entrepreneurs, are vital to the competitiveness of the economy. The gains of entrepreneurship are only realized, however, if the business environment is receptive to innovation. In addition, policymakers need to prepare for the potential job losses that can occur in the medium term through “creative destruction” as entrepreneurs strive for increased productivity.

Entrepreneurship has a cyclical component, raising two questions. Is the entrepreneurship cycle related to the business cycle? And is there causality? A two-way relationship between entrepreneurship and the business cycle would be in line with the two faces of entrepreneurs: as agents of change creating upswings (opportunity entrepreneurship) and as rational actors escaping unemployment by setting up a business (necessity entrepreneurship). Nascent entrepreneurship can indeed be precyclical, implying that the two faces of entrepreneurship also show up in the business cycle, with promising policy implications.

Can entrepreneurship programs be successful labor market policies for the poor? A large share of workers in developing countries are self-employed in low-paying work or engage in low-return entrepreneurial activities that keep these workers in poverty. Entrepreneurship programs provide business training and access to finance, advisory, and networking services with the aim of boosting workers’ earnings and reducing poverty. Programs vary in design, which can affect their impact on outcomes. Recent studies have identified some promising approaches that are yielding positive results, such as combining training and financial support.

In many countries, ethnic minority groups are over-represented in self-employment compared with the majority community. The kind of work done by minority entrepreneurs can therefore be an important driver of the economic well-being of their ethnic group. Furthermore, growing the self-employment sector is a policy objective for many governments, which see it as a source of innovation, economic growth, and employment. While self-employment might offer economic opportunities to minority groups, it is important to understand the factors that underlie the nature and extent of ethnic entrepreneurship to evaluate whether policy measures should support it.