Transcript The Origins of Self-Employment

The Origins of Self-Employment
Some comments
Enrique Seira
Environment in B&H: Time trends
 War:
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75% drop in per-capita GDP from 1990 to 1995, and
back again to pre-war level in 2005.
In 1996 (self reported) unemployment rate was 80%,
and decreased to 35% by 2001.
Informal sector is estimated to be 50% of GDP
 After War Policies:
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Promotion of self-employment through: micro-credit
(2000); bank deregulation (2001); and labor mobility
(2000)
Data
 LSMS:
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Panel 2001-2004.
About 5,400 households.
 Definitions:
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Self-employed: owner of an enterprise (5%)
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Enter self-employment: not SE in 2001 and SE
between 2002-2004 (229 individuals enter SE)
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Survive: still SE in the following 1-year (about ½ exit)
Some Hypothesis and Empirical
Strategy
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Entry into self employment and survival facilitated
(among others) by:
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Access to finance (having a bank loan)
Psychological factors (optimism)
Coming from the informal sector (incubator)
Empirical Strategy:
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Compare the characteristics of entrants into selfemployment with those that never become self
employed in sample period (employed, unemployed,
inactive)
Estimate determinants of survival taking into account
that “new entrepreneurs” are a selected sample
Some of the Main Results
 Having an existing bank “relationship” positively
related to survival, although not to entry into self
employment
 Individuals that become self-employed have:
 More wealth (2 s.d. increase= 2%*** more likely to
become SE. Recall 5% are SE)
 More optimistic (1%***)
 More likely to come from informal sector (coeff=0.019*)
 More likely to survive if household have:
 More wealth (1.6%**)
 Bank loan in 2001 (coeff=0.02*)
 Come from informal sector (coeff=0.014***)
Advantages and Contributions
 Rich set of individual characteristics including:
 Psychological factors
(Evans and Leighton 1989, Djankov et al 2005)
 Relation with financial institutions
(Paulson and Townsend 2005)
There has been very little work exploring these determinants.
 Few studies of entrepreneurship in LDC’s, but
presumably tighter financial constraints there.
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Are entrepreneurs different in LDC’s?
 Analysis of where the entrepreneurs are coming from:
 Finding: more likely to come from informal sector.
Some Concerns
 Causality: what is driving entry into self employment?
 Recall: period of big changes in the economy
 How representative? (non-stationary): who has yet to
switch and who switched before the sample period?
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There is evidence that the characteristics of the entrants to
self-employment change during a crisis (Paulson and
Townsend 2005). You may be picking a particular selection.
However: no mayor time trends in SE in this sample.
 Having a loan in 2001=Access to finance?
What do we
learn from this coefficient? Not clear: confounding effects:
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Maybe this crowds out future loans. Leverage may be
associated with higher exit (Zingales 1998)
Access/supply vs. demand of credit?
Financing effect (on it’s own) vs. Selection by bank?
Things I would like to see
 Changes in opportunity cost being SE: Include time
varying proxies of labor market opportunities (wages in
different jobs, general unemployment, etc).
 “forced” self-employment? (Fragile histories of
employment: Evans and Leighton 1989) Analyzing which
industries do the newly self-employed go to, as well as
the profit they make could provide useful information.
 What type of informal workers are becoming owners:
those with other out of employment activity?
 Compare entrepreneurs with employed, unemployed and
inactive separately.