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The Global Entrepreneurship Monitor

Entrepreneurs contribute to the economy by creating value out of business opportunities they create, identify and exploit. In this way, entrepreneurship leads to innovation, employment, independence and various social benefits. So, entrepreneurship is important, but what are the differences in level of entrepreneurship between different countries? And how can these be explained? To be able to answer such questions, we need data from a large group of countries that are measured in an identical way.

This is exactly what the Global Entrepreneurship Monitor (GEM) project has been doing since 1999; while starting with 10 countries, in 2012 data were already collected in almost 70 countries worldwide. The GEM project is carried out by a consortium dedicated to understanding the relationship between entrepreneurship and national economic development. GEM reports are publicly available and are a key resource of comparable data across a large variety of countries on attitudes towards entrepreneurship, startup and established business activities.

The GEM data collection is based on a simple model in which people go through different stages during the process of entrepreneurship. The main variables are measured in the following way:

  • Potential entrepreneurs: Potential entrepreneurs are individuals who have not yet taken steps to start a business, but they have the beliefs and abilities to start a business.
  • Entrepreneurial intent: Potential entrepreneurship is followed by entrepreneurial intent. In this phase, individuals are included who have actual intentions – alone or together with other individuals – to start a new business within the next three years.
  • Nascent entrepreneurs refers to individuals within the adult population (18-64 years of age) who are currently trying to start a new business. For this startup effort, the individual expects to own at least a part of this new business, and salaries or wages have not yet been paid for the past three months.
  • New entrepreneurs are currently involved in owning and managing a new existing business. Salaries or wages have been paid for between 3 and 42 months. Self-employed individuals may also be included in this group.
  • Established entrepreneurship: The cycle continues with established business owners, who have been owner-managers of a business for at least 42 months (including self-employed individuals).
  • Discontinuance: Any entrepreneur may decide to quit his/her business endeavour at some moment of time. This discontinuance of entrepreneurial activities may reflect a voluntary exit such as an opportunity to sell the business. On the other hand, it may also reflect an involuntary choice or less successful terminations, such as difficulties of getting external finance or a lack of profitability of the business.

Total early-stage entrepreneurial activity, opportunity or necessity driven

GEM’s primary measure of entrepreneurship is total early-stage entrepreneurial activity (TEA). TEA consists of nascent entrepreneurs and new entrepreneurs. This measure gives an indication how ‘popular’ or ‘attractive’ entrepreneurship is among people in certain regions. Individuals who are involved in early-stage entrepreneurial activity are also asked about their underlying motives of starting a business. Within the GEM project, such motives are usually categorised as either opportunity motives or necessity motives. Opportunity entrepreneurship reflects start –up efforts “to take advantage of a business opportunity”, whereas necessity entrepreneurship exists when there are “no better choices for work”. In times of economic downturn, necessity driven entrepreneurship will be relatively important, while in prosperous regions and/or times, we expect to see more opportunity driven activity.

Stages of Economic development:

The role of entrepreneurship in the economy and the specific nature of entrepreneurial activity depend on the level of economic development of an economy. Three stages of economic development can be identified which can be ordered from least developed to most developed as follows:

  • Factor-driven economies. Economic activity in these economies is primarily based on the extraction of natural resources;
  • Efficiency-driven economies. In these economies, industrialization and increasing scale-intensity are the major drivers of economic development;
  • Innovation-driven economies. The service sector strongly expands and the industrial sector evolves in terms of variety, R&D, and knowledge intensity.

To be able to compare between regions in different stages of economic development, GEM has developed the following classification (GDP per capita in US$):

Stage of economic development Classification (GDP per capita in US$)
Stage 1: Factor-driven < 2,000 US$
Transition from stage 1 to stage 2 2,000 – 3,000 US$
Stage 2: Efficiency-driven 3,000 – 9,000 US$
Transition from stage 2 to stage 3 9,000 – 17,000 US$
Stage 3: Innovation-driven ≥ 17,000 US$

By combining these different variables GEM reports produce interesting tables such as table 2.3 on page 30 of the GEM Report 2013. You should read the numbers as percentages of the adult population (18-64 years of age). You can see that there are striking differences in entrepreneurial activities among countries that make one curious about the causes of these differences.

  • Why is the TEA in Ecuador about 7 times (!!) higher than in Suriname?
  • And why is the level of necessity driven entrepreneurship in Belgium 29% while in the Netherlands it is only 8%? These two countries are about the same size, are neighbours, and have a similar level of economic development.

By studying this kind of information it is possible to get a deep understanding of the development of entrepreneurship within one country and also to compare this to other regions. The GEM consortium produces global reports, country reports, and also reports on specific themes such as youth entrepreneurship, female entrepreneurship and education & training. All GEM reports are freely downloadable. So take a look at their website and browse through their reports and other material. Probably there is a report on a country, region, or topic that has your specific interest!

Sources:

GEM’s 2013 Global Report (Amorós, Bosma, 2014). GEM’s 2012 National Report on the Netherlands (van der Zwan, Hessels, Hoogendoorn, de Vries, 2013).

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