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The more business owners, the merrier? The role of tertiary education

Policy in developed countries is often based on the assumption that higher business ownership rates induce economic value. Recent microeconomic empirical evidence may lead to a more nuanced view: Especially the top-performing business owners are responsible for the value creation of business owners....

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Published in:Small business economics 2013-08, Vol.41 (2), p.335-357
Main Authors: van Praag, Mirjam, van Stel, André
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Language:English
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description Policy in developed countries is often based on the assumption that higher business ownership rates induce economic value. Recent microeconomic empirical evidence may lead to a more nuanced view: Especially the top-performing business owners are responsible for the value creation of business owners. Other labor market participants would contribute more to economic value creation as an employee than as a business owner. The implied existence of an "optimal" business ownership rate would thus replace the dictum of "the more business owners, the merrier." We attempt to establish whether there is such an optimal level, i.e., a quadratic relation between the business ownership rate and economic output rather than a linear or higher-order relationship, while investigating the role of tertiary education. Two findings stand out. First, by estimating extended versions of traditional Cobb-Douglas production functions on a sample of 19 OECD countries over the period 1981-2006, we indeed find robust evidence of an optimal business ownership rate. Second, the relation between business ownership and macroeconomic productivity is steeper for countries with higher participation rates in tertiary education. Thus, the optimal business ownership rate tends to decrease with tertiary education levels. This is consistent with microeconomic theory and evidence showing that business owners with higher levels of human capital run larger firms.
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source EconLit s plnými texty; EBSCOhost Business Source Ultimate; International Bibliography of the Social Sciences (IBSS); ABI/INFORM global; JSTOR Archival Journals and Primary Sources Collection; Springer Link
subjects Business and Management
Business ownership
Business structures
Developed countries
Economic growth
Economic models
Economic statistics
Economic theory
Economic value
Education
Educational attainment
Employees
Employment
Entrepreneurs
Entrepreneurship
Estimation
GDP
Gross Domestic Product
Higher education
Human capital
Industrial Organization
Industrialized nations
International
Labor force
Labor market
Labour market participation
Macroeconomics
Management
Microeconomics
Production functions
Proprietors
Public policy
Studies
Tertiary education
Value creation
title The more business owners, the merrier? The role of tertiary education
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