Business Ownership and Sectoral Growth: An Empirical Analysis of 21 OECD Countries

Abstract

We investigated the development of business ownership (self-employment) rates over time at the sectoral level and the effect of these rates on sectoral output growth. In an earlier exercise, Carree et al. (2002) presented an analysis of the interrelationship between economy-wide business-ownership rates and economic development. Their analysis raised an important research question: To what extent do differences in business ownership rates at the economy-wide level reflect differences in the sectoral structures of economies or differences in business-ownership rates at the sectoral level? The current paper investigates this question making use of a sectoral database of 21 OECD countries for the 1970-98 period. Estimation results suggest that there is, on average, a too low business-ownership rate in manufacturing and a too high business ownership rate in services. This paper was previously published as Research Report H200206. Compared to the earlier version, it specifically elaborates the theoretical foundation of the estimated model in more detail.