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Small Business Economics

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21.04.2018

Public policies to enhance regional entrepreneurship: another programme failing to deliver?

verfasst von: Georgios Fotopoulos, David J. Storey

Erschienen in: Small Business Economics | Ausgabe 1/2019

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Abstract

This paper examines public policies aimed at enhancing entrepreneurship. Drawing upon both theory and prior empirical work, it formulates four tests of policy effectiveness and applies them to evaluate the Wales Entrepreneurship Action Plan (EAP). Apart from some short-lived, limited positive effects, we do not find the EAP reached its business formation targets and made no long-run progress towards Wales becoming more entrepreneurial. By analysing local authority districts in Wales and England, we find that the factors influencing changes in rank mobility in regional entrepreneurship were increases in human capital, in-migration, small firm presence, home ownership and population in the 55–64 age bracket. Importantly, it was regions with initially high wages that saw the greatest rise in entrepreneurship. If ‘more’ entrepreneurship is sought, it is these factors that merit attention rather than the use of public subsidies to directly raise business formation rates.

Vorheriger Artikel The dynamics of switching between governmental and independent venture capitalists: theory and evidence

Nächster Artikel Bank market power and the intensity of borrower discouragement: analysis of SMEs across developed and developing European countries

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Note we now focus on Entrepreneurship policy rather than Entrepreneurship and SME policy. Lundström and Stevenson (2006) were the first to emphasise that SME policy focussed on existing small and medium enterprises. Entrepreneurship policy was focussed on the creation of new enterprises.

The literature on “ease of doing business” is an example. Peng et al. (2010, pp. 517–518) say “Market-friendly institutions generally facilitate more vibrant entrepreneurship development, which, in the aggregate would translate into economic development...”

The UK National Audit Office (NAO), for example, reported in 2014: “Only 14 evaluations (out of 34 examined) were of a sufficient standard to give confidence in the effects attributed to policy because they had a robust counterfactual. The evaluations we reviewed, covering spatial policy and business support, were generally weaker than some of those covering labour market and education policies” (para 13 p. 7).

This is in line with the observations of OECD (2007), Bridge (2010), Greene (2009), and Eurofound (2016) that the reported impact of entrepreneurship policy initiatives is generally inversely proportional to the sophistication of the statistical methods employed.

ILO (2015, p. 39) say “on the basis of the evidence and data reviewed, it is not clear that the self-employment and entrepreneurship schemes that have been tried actually created new jobs, nor is it clear whether these jobs are of sufficient merit to be worth creating”. Eurofound (2016, p. 2) say “The growing interest in youth entrepreneurship has not been matched by sound evaluations of the impact of specific initiatives”.

But earlier by Storey (1994) and Vivarelli (2004).

Available online: http://www.arsyllfadysgu.com/uploads/publications/674.pdf

GEM, however, is NOT a Panel in the sense of tracking the same individuals over time, so no verification is possible.

The data also has other advantages in the current context. First, it is obtained directly from the Census, so it has strong reliability and coverage. Second, it does not rely on businesses being required to be above a minimum size, which is a requirement for government datasets. Third, government new registration data has been subject to changes in calibration, so there is no single and consistent time-series. Fourth, it is available at low spatial levels.

(BIS, http://aalookup.bis.gov.uk/ed/vat/VATGuidance2007.pdf)

Scottish business birth rate strategy was inaugurated in 1993. Although the total expenditure is unclear, it is in the range of £120 million to £175 million over a 7-year period. Its target was to close the gap in the business birth rate between Scotland and the rest of the UK by the year 2000 implying the creation of 25,000 new firms. The ex-post assessment by Fraser of Allander Institute (2001) concluded that, over the 6-year period until 1999, the number of new firms started that could be attributable to the programme was 2124. The programme clearly did not succeed.

These results are available from the authors upon request.

An alternative rank mobility index to the one used in the present study following Fotopoulos and Storey (2017) could have been \( \mathrm{RMI}=\frac{{\mathrm{RANK}}_{t-\tau }-{\mathrm{RANK}}_t}{{\mathrm{RANK}}_{t-\tau }+{\mathrm{RANK}}_t} \) (https://en.wikipedia.org/wiki/Rank_mobility_index). This is confined in the (− 1, 1) interval; however, a different value of the index is obtained when an equal number of places increase (or decrease) is initiated in different parts of the initial distribution. For example, going from the 348th position to the 342th yields a value of RMI = 0.008696. Whereas going from the 7th to the 1st place yields RMI = 0.75. This index is biased in favour of changes initiated at the top of the distribution. In contrast, the RMI used here is symmetrical in the sense that an equal amount of ranking positions changes results in the same index value independently from the initial rank position.

The variable with the highest VIF has been the one accounting for changes in immigration in all model permutations estimated, ranging from 3.07 to 3.55.

Appendix Tables 5 and 6 give the partial correlation coefficients for the independent variables used in the estimations presented in Table 4. Despite the high correlation coefficient between the ΔHUMANCAP and ΔIMMIGR variables, both retain their expected sign and statistical significance.

The results obtained for WALES were further scrutinised in permutations (not shown but are available upon request) that excluded the London LADs altogether. The conclusions drawn for WALES hold in the face of exclusion of London observations.

Due to its construction, this variable was further tested for possible endogeneity. There is the possibility that there are unaccounted for factors that affect both the change in small firm presence and self-employment-based changes in regional entrepreneurship rank mobility. Thus, ΔSMFP was instrumented by taking two lags (each lag results going back 10 years to the previous census), and the hypothesis of this variable being exogenous could not be rejected.

This is not surprising to the extent that, as it was explained earlier, WALES and COSTAL do not represent mutually exclusive categories. For brevity, these results are not presented but are available upon request.

An even higher level of spatial aggregation would result in only one observation for Wales. In contrast, a more disaggregated level would entail mean using very small areas such as electoral wards, communities which would not capture labour markets. It should also be noted that West Wales and the Valleys primarily consist of coastal areas, save for Central and Gwent Valleys.

Note the high positive correlation-coefficient between ΔIMMIGR and ΔHUMANCAP-see appendix Tables 5 and 6.

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Titel: Public policies to enhance regional entrepreneurship: another programme failing to deliver?
verfasst von: Georgios Fotopoulos
David J. Storey
Publikationsdatum: 21.04.2018
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 1/2019
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-018-0021-9

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