1 Introduction
In the past few decades, interest in the role of start-ups and small firms as determinants of employment growth and economic development has increased considerably. One of the reasons for this is that several regions in advanced economies have experienced stagnation or decline in traditional manufacturing activities. Stimulation of entrepreneurship and new business formation is viewed as a means to secure present and future job opportunities (Andersson & Noseleit, 2011).
There are strong reasons to believe that entrepreneurship is an essential explanatory factor of the economic performance of a country, and that the degree of productive entrepreneurial activity explains part of observed cross-country differences in economic performance (Davidsson & Henrekson, 2002). Entrepreneurship as a societal phenomenon draws attention to antecedents and outcomes of entrepreneurial behaviour, while entrepreneurship as a research field aims to understand what entrepreneurship is.
At policy level, recent documents by the European Commission (2010) and OECD (2010) (European Commission, 2011; OECD/EUROPEAN UNION, 2019) have emphasized the importance of entrepreneurship to promote the development of member countries.
In recent years, national and local governments have placed a great emphasis on the development of a culture of entrepreneurship, which is considered to be crucial for coping with the challenges and opportunities of globalization. The European Commission (EC) are stimulating entrepreneurship across all EU nations and regions, as a major driver of innovation, competitiveness and growth. This is being promoted and supported through a variety of strategies, policies, programmes and funds, structural and cohesion funds, focusing on improving the entrepreneurial environment for start-ups and existing firms.
Consequently, increasing the rate of new firm formation has become a key priority for policymakers interested in fostering economic development: âFor a variety of reasons, promoting entrepreneurship enjoys support from governments at both ends of the political spectrum. Pro-entrepreneurship policies have been embraced as a means of increasing economic growth and diversity, ensuring competitive markets, helping the unemployed to generate additional jobs for themselves and others (rather than share existing work), countering poverty and welfare dependency, encouraging labour market flexibility, and drawing individuals out of informal economic activity. In short, an enterprise imperative has been charged with addressing a broad array of economic and social aspirationsâ (OECD, 2003, pp. 9â10).
National, regional and local policymakers are increasingly united in recognizing that economic growth is correlated with a favourable entrepreneurial environment and increasingly perceive the stimulation of a culture of entrepreneurship as a major politically driven task.
To implement effective entrepreneurship policies, it is necessary to understand the determinants of and the obstacles to entrepreneurship. The lack of internationally comparable empirical evidence and the fact that the measure of entrepreneurship is not a simple issue to prevent clear conclusions about the effectiveness of different policy approaches.
There is a consensus that entrepreneurship is a multifaceted concept that manifests itself in many different ways and, as a consequence, there are wide differences across academic disciplines about what entrepreneurship is (Salas-Fumas & Sanchez-Asin, 2013). Several definitions of entrepreneurship have emerged and measurement focuses on the individual level (self-employment) or firm level (business dynamics).
This first chapter is aimed at understanding the dynamics of new firm formation. In doing so it discusses the possible measures to analyse the entrepreneurial phenomenon, the factors affecting entrepreneurial dynamics and the factors explaining the national and regional differences in entrepreneurial rates.
The present chapter is organized as follows. The first section provides a critical review of the literature on entrepreneurship and entrepreneurial rates; the second one analyses the entrepreneurial dynamics in Italy during the period 2002â2019. Data about entrepreneurial rates are taken from the Movimprese database, provided by the Italian Chambers of Commerce. The second section investigates the differences in entrepreneurial dynamics among EU countries. The analysis is based on data from GEM (Global Entrepreneurship Monitor) that are available for the main European countries for the period 2001â2019. Differently from the Movimprese database, GEM data refers to the adult population rather than to firms. Moreover, they provide additional information on the personal characteristics of nascent and novice entrepreneurs and on the new venture they are going to implement (DâAdda, Iacobucci, Micozzi, & Micozzi, 2020).
2 Theoretical Background
2.1 Definition of Entrepreneurship
All concepts of entrepreneurship include the idea that a new business entity, activity, venture, product or service, has been created. The earliest use of the French word âentrepreneurâ was associated with descriptions of those individuals assembling resources to produce new economic value.
Later development of the entrepreneurship concept emphasized a preference for risk-taking, opportunity recognition and exploitation, an orientation towards growth, or displacement of existing firms: the well-known âcreative destructionâ mechanism (Schumpeter, 1943). These views emphasize different aspects of entrepreneurship, but all include business creation as a central feature. While it is difficult to develop empirical measures of risk-taking or opportunity recognition or growth potential, it has been possible to develop reliable empirical measures of business creation.
Entrepreneurs are individuals who innovate, identify and create business opportunities, assemble and coordinate new combinations of resources so as to extract the most profit from their innovations in an uncertain context (Amit, Glosten, & Muller, 1993). Leibenstein (1968) offers a more detailed characterization of the entrepreneur as one who performs different tasks: (a) connects different markets; (b) answers a market gap; (c) creates and is responsible for contractual arrangements; (d) completes inputs and transforms them in outputs.
Schumpeter is the first author to address the question of the link between entrepreneurship and economic growth.
An increase in the number of entrepreneurs leads to an increase in economic growth. This effect is the result of the mobilization of their skills and their propensity to innovate. Schumpeter described this innovative activity as âthe carrying out of new combinationsâ, by distinguishing five cases: (1) the introduction of a new good or a new quality of a good; (2) the introduction of a new method of production; (3) the opening of a new market; (4) the occupation of a new source of supply of raw materials or half manufactured goods; (5) the carrying out of a new organization of industries, such as the creation of a monopoly position (Schumpeter, 2000).
By introducing new ideas, new processes, new products and services, Schumpeterian entrepreneurs affect and renew economic activities: the activities not only of the firms and industries, but also those of the region in which they are situated, generating economic growth.
Wennekers and Thurik (1999, p. 50) explicit this process: âAt the aggregate level of industries, regions and national economies, the many individual entrepreneurial actions compose a mosaic of new experiments. In evolutionary terms this can be called variety. A process of competition between these various ideas and initiatives takes place continuously, leading to the selection of the most viable firms and industries. Variety, competition, selection and also imitation (âŠ) expand and transform the productive potential of a regional or national economy (by replacement or displacement of obsolete firms, by higher productivity and by expansion of new niches and industries)â.
The second author that shaped the economics literature on entrepreneurship in the twentieth century was Kirzner (1982). Entrepreneurs perceive profit opportunities and initiate actions to fill currently unsatisfied needs or to do more efficiently what is already done (Kirzner, 1985). In the Kirznerian tradition, entrepreneurs demonstrate inclination to exploit opportunities to generate profit.
Knight (1921) described the entrepreneur as one who undertakes uncertain investments, for which the future returns and the associated probability distribution are unknown. The entrepreneur is characterized as having an unusually low le...
