Modelling latent and actual entrepreneurship

Abstract

The determinants of latent (i.e., desired) and actual entrepreneurship are analysed in two ways with nearly 8,000 observations from the 2004 “Flash Eurobarometer survey on Entrepreneurship” covering the 25 European Union member states and the United States. Both methods lead to new and extensive insights in the interrelation of both concepts. First, latent and actual entrepreneurship are investigated simultaneously in a bivariate probit setting. The perception of lack of financial support, the perception of administrative complexities, and the perception of lack of sufficient information do not have significant direct impacts on latent entrepreneurship. This points at indirect effects of these variables on latent entrepreneurship via actual entrepreneurship. Second, four groups of individuals are distinguished, based on their involvement in both measures of entrepreneurship. The analysis enables us for example to discuss the determinants of ‘necessity entrepreneurship’. Results show that the perception of administrative complexities is a significant obstacle in setting up a business, irrespective of the declared preference for self-employment, while the perception of financial constraints does not have a significant influence. Also, necessity entrepreneurs are characterized by a relatively low education level compared to those who are neither latent nor actual entrepreneurs. Each model has its own merits. The multinomial model enables researchers to perform group-wise analyses, while the bivariate probit model makes is possible to take into account the importance of latent entrepreneurship without explicitly including latent entrepreneurship in the set of explanatory variables.