Description
Within this data relating to export orientation among new ventures and economic growth.
1
H200626
Export Orientation among New
Ventures and Economic Growth
S. Jolanda A. Hessels
André van Stel
Zoetermeer, December, 2006
2
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3
4
Export Orientation among New Ventures and Economic Growth
S. Jolanda A. Hessels
A
André van Stel
A, B, C
A
EIM Business and Policy Research, Zoetermeer, The Netherlands
B
Cranfield University School of Management, Cranfield, UK
C
Erasmus University Rotterdam, The Netherlands
Abstract:
While it is generally acknowledged that entrepreneurship as well as export activity may both be im-
portant strategies for achieving national economic growth, it has remained unclear how export activ-
ity among new ventures is related to economic growth. This paper investigates whether the presence
of export-oriented entrepreneurs is a more important determinant of economic growth than entrepre-
neurial activity in general. We focus on the national or macro-level and use data from the Global En-
trepreneurship Monitor for a sample of 36 countries. An important advantage of using the macro-
level is that indirect effects of exporting entrepreneurs that reach further than the performance of
these firms themselves (e.g. spillovers) are captured in the analysis. To our knowledge, no attempt
has been made thus far to link international activity of early-stage ventures to macro-economic out-
comes. Our results suggest that export-oriented entrepreneurship is indeed more important for
achieving high economic growth rates than entrepreneurial activity in general. This suggests that in-
ternational activity by small and new firms strongly contributes to higher levels of competition and,
consequently, to the emergence of highly dynamic economies and higher levels of economic growth.
Version: December 2006
Keywords: entrepreneurship, export, economic growth, Global Entrepreneurship Monitor
JEL-classification: F23, L25, L26, O47, O57
Document
M-#156161-v2-
Export_Orientation_among_New_Ventures_and_Economic_Growth.DOC
Correspondence: Jolanda Hessels, [email protected]
Acknowledgement: We are grateful to Siri Terjesen, Roy Thurik, and participants at a Max Plan-
ck Institute of Economics seminar (Jena, 28 September 2006) and the ISBE conference (Cardiff,
31 October-2 November 2006), for providing us with helpful comments and suggestions.
5
1. Introduction
It is generally acknowledged that export is an important strategy for achieving economic growth.
This is true for developed as well as developing countries. Both enterprises and nations gain from
exporting (Almeida Couto et al., 2006). For example, enterprises may benefit from exporting activ-
ity, because exports contribute to business growth (Zahra et al., 1997). Also, the importance of ex-
ports for national economies has been emphasized in previous research. For example it has been ar-
gued that exporting firms are more productive than non-exporting firms (Girma et al., 2004). How-
ever, previous research with respect to the importance of export for national economies has strongly
focused on established corporations and large multinational enterprises. Less attention has been paid
to the role of start-ups in international markets (Audretsch & Thurik, 2000). In this study we attempt
to address this gap by examining whether export orientation of new ventures makes a significant
contribution to national economic growth.
Besides export activity, entrepreneurship is also considered an important mechanism of economic
development (Schumpeter 1934; Wennekers and Thurik 1999; Baumol 2002) and for developing
competitive economies (Hawkins, 1993). For example, entrepreneurs may contribute to economic
growth because they are important for introducing or generating innovations (Autio, 1994; Acs and
Audretsch, 2003). In particular, entrepreneurs contribute to a process of variety and selection where
many individual entrepreneurs pursue an observed market opportunity and try to economically ex-
ploit a new idea. However, due to an increased uncertainty in the global knowledge economy, it is
not clear a priori which of these different new ideas are economically viable (Audretsch and Thurik,
2000). Only after setting up a new business, entrepreneurs find out what consumers prefer and hence,
whether their new ideas are economically viable. Most of these new ideas will not be economically
viable but some of them will be. The successful ideas often turn into innovations. When there are
more entrepreneurs pursuing new ideas, the level of competition is higher and the process of variety
(i.e. a large number of different new ideas being pursued) and selection will be more intense. From
an economy-wide point of view this higher intensity increases the probability of actual innovations
taking place (i.e. of economically viable ideas being ‘selected’ through the market). Several studies
confirm a positive impact of entrepreneurship on national economic growth for developed countries
(see e.g. van Stel, 2006).
Within the field of entrepreneurship there is increased attention for the topic of “international entre-
preneurship”. International entrepreneurship concentrates, among others, on studying firms that are
involved in international activity from inception or shortly thereafter. Such firms are commonly re-
ferred to as ‘born globals’ (Rennie, 1993; Knight & Cavusgil, 1996), ‘international new ventures’
(Oviatt & McDougall, 1994) or ‘global start-ups’ (Universiteit Twente & Universidad Miguel
Hernández de Elche, 2005). There is evidence that the number of born globals or international new
ventures is increasing (Oviatt & McDougall, 1994). Born global firms are thought to be of impor-
tance in terms of innovation and employment (Moen, 2002). However, only a few empirical studies
have investigated the effect of export on business performance among new ventures (Bloodgood et
al., 1996; McDougall & Oviatt, 1996; Zahra et al. 2000). Furthermore, whereas it is generally ac-
knowledged that internationally oriented new ventures are important in terms of economic growth
(Moen, 2002) to our knowledge, this link has not been investigated empirically. We aim to extend
the literature on new venture export activity and growth by focusing on the country level. In particu-
lar the present paper builds on the assumption that exporting entrepreneurs develop specific skills
(including innovative skills) through their export activity and, consequently, a high number of ex-
porting entrepreneurs may be even more conducive to the process of variety and selection described
above, compared to high numbers of domestically operating entrepreneurs. In other words, high
6
numbers of exporting entrepreneurs may have a particularly strong impact on competition, innova-
tion and economic growth.
To summarize, in studying the relationship between entrepreneurial activity and growth we expect
that in particular export-oriented entrepreneurship will make an important contribution to economic
growth. Therefore, we will investigate in this paper whether the presence of export-oriented entre-
preneurship makes a more important contribution to national economic growth than entrepreneurial
activity in general. This issue is of specific interest to policy-makers since governments in many
countries have developed programs that focus on the promotion of export activity.
The paper is structured as follows. Section 2 presents a review of the literature on the link between
export and entrepreneurship on the one hand and economic growth on the other hand. In Section 3
we will present the data and research method used for the empirical analysis and in Section 4 we pre-
sent the results of our empirical analysis of the association of the presence of export-oriented entre-
preneurs and national economic growth. Finally, in Section 5 we discuss the outcomes and conclu-
sions.
2. Theoretical background
In research there has been an increased focus over the past 15 years on international operations of
new ventures (Oviatt & McDougall, 1994). Bloodgood et al. (1996) state that there are two main rea-
sons for why new ventures may seek international presence. The first is that industry conditions may
require an international presence to be competitive. The second is that a venture may seek a presence
in international markets because it possesses unique resources on which it may capitalize (e.g. man-
agement experience in global markets or technological capabilities).
International activities of new ventures, such as born globals (Rennie, 1993; Knight and Cavusgil,
1996) or international new ventures (Oviatt & McDougall, 1994) are studied within the field of in-
ternational entrepreneurship. McDougall & Oviatt (2000) have classified international entrepreneur-
ship as a new emergent field of study. They define international entrepreneurship as: “ (…) a combi-
nation of innovative, pro-active, and risk seeking behaviour that crosses national borders and is in-
tended to create value in organizations” (McDougall & Oviatt, 2000: 903).
Within the field of international entrepreneurship, the internationalisation of firms is characterized as
“a rapid process of international expansion from inception, using a range of market entry modes in
multiple markets” (Jones & Coviello, 2005). However, export activity is the most common mode of
foreign operation among new ventures (Zahra et al., 1997). Export activities are considered to be the
first and most common step in a firm’s international expansion (Young et al., 1988). Therefore, the
focus in this study is on export activity of early-stage entrepreneurs and not on other modes of inter-
nationalization. One reason why exporting is an important means for international expansion among
newly established firms is that export does not require major capital investments (Erramilli &
D’Souza, 1993; Root, 1994) and has lower commercial and financial risk as compared to for exam-
ple foreign direct investment (Jaffe & Pasternak, 1994). Even though small and new firms are in-
creasingly involved in international markets (e.g. Oviatt & McDougall, 1994) small exporters still
account only for a minor share of total exports in many developed and developing countries (Jaffe &
Pasternak, 1994).
The study of internationalization of new ventures crosses the field of international business and the
field of entrepreneurship. On the one hand, research in international business, that tended to mainly
focus on large established multinational companies, is broadening its scope and increasingly incorpo-
rating entrepreneurial firms (McDougall & Oviatt, 2000). International entrepreneurship is high-
lighted as an important emerging research area in the field of international business (Wright & Ricks,
7
1994). On the other hand, following the increasing number of new venture firms that are internation-
alizing their business activities early in their life cycles (Oviatt & McDougall, 1994; Zahra et al.,
2000), international activities are of increasing interest to researchers in entrepreneurship (McDou-
gall & Oviatt, 2000).
Exporting activity is of importance for both enterprises and nations (Lages & Montgomery, 2004;
Almeida Couto et al., 2006). The merits of export at the firm level are well reported in literature. For
example, it is widely acknowledged in literature that exports are important for expanding sales,
achieving business growth and for improving financial performance (Edmunds & Khoury, 1986;
Daniels & Bracker, 1989; Zahra et al., 1997). At the firm level exports may also contribute to inno-
vation, enhancement of managerial skills, diversification of business risks, the extension of the life
cycles of products and absorbing excess capacity (Daniels & Bracker, 1989; Katsikeas et al., 2000;
Lages & Montgomery, 2004). Furthermore, through market diversification, exporting provides an
opportunity for firms to become less dependent on the domestic market. Also firms may gain experi-
ence from export activity, which may lead them to explore new foreign markets and get involved in
other forms of internationalization, such as licensing, joint ventures or direct investment abroad
(Lages & Montgomery, 2004).
It is also believed that newly established firms may benefit from exporting in terms of improving a
new venture’s competitive and financial performance (Zahra et al., 1997). However, research on in-
ternational activities of new ventures has focused mainly on antecedents of early-stage international
activity in trying to explain the emergence of these internationally oriented new firms or the early in-
ternationalisation of firms. Only a few empirical studies have focused on identifying economic con-
tributions of early-stage firms in terms of growth and profitability (Bloodgood et al., 1996; McDou-
gall & Oviatt, 1996; Zahra et al. 2000). These studies find only weak evidence of a link between in-
ternationalization and performance. For example Bloodgood et al. (1996) that focus on 61 high-
potential new ventures in the U.S., found that internationalization was significantly, but only margin-
ally, related to earnings after two years, and was not related to sales growth. McDougall & Oviatt
(1996) found, for their sample of 62 U.S. new venture manufacturers in the computer and communi-
cations equipment industries, that higher levels of export sales were related to higher relative market
share two years later, but they did not find evidence of a direct significant relation between percent-
age of foreign sales and subsequent return on investment. Because of this weak empirical foundation
more research is needed on the direct as well as indirect effects of new ventures’ international opera-
tions on economic performance (Zahra et al., 2000).
Furthermore, export activity may not only generate financial benefits for the firm, but is likely to re-
sult in increased knowledge and higher human capital levels, also for small and new firms (Lu &
Beamish, 2001). For example, in case of entry into foreign markets firms often have to develop new
resources and capabilities since the knowledge and capabilities that the firm has developed for the
local or national market are often not suitable to operations abroad (Lu & Beamish, 2001). Export
may also result in the accumulation of knowledge of foreign markets and in the development of new
organizational capabilities through the accumulation of experience abroad (Johanson & Vahlne,
1977).
When many new firms engage in export activity, the chance that the knowledge gained through this
activity spills over to other firms may be considered relatively high. The reason for this is that small
and new firms have a lot of business contacts with other firms (for instance through cooperation or
through buyer-supplier relations) which may lead to exchange of knowledge. Via these so-called
spillovers knowledge may accumulate not only at the firm level (i.e. the exporting firm) but also at
the aggregate level (i.e. the firm population in general).
We intend to contribute to the empirical literature on new ventures’ export activity and growth by fo-
cusing on the macro- or national level. An important advantage of using the macro-level is that indi-
8
rect effects of exporting entrepreneurs that reach further than the performance of these firms them-
selves are captured in the analysis. In particular economy-wide effects of innovations made by ex-
porting firms (e.g. knowledge spillovers) are taken into account. To our knowledge, no attempt has
been made thus far to link international activity of early-stage ventures to macro-economic out-
comes.
At the national level, and specifically from the point of view of national governments, exporting ac-
tivity is crucial because it contributes to economic development of nations (Lages & Montgomery,
2004). For example, exports have a positive impact on the national amount of foreign exchange re-
serves and on national prosperity, and contributes to the development of national industries, to im-
proved productivity and to the creation of employment. The importance of exports for national
economies has been emphasized in previous research (Girma et al., 2004). However, previous re-
search regarding to the importance of export for national economies has strongly focused on estab-
lished corporations and large multinational enterprises and less attention has been paid to the role of
newly established firms (Audretsch & Thurik, 2000). Whereas it is generally acknowledged that in-
ternational orientation among new ventures is important in terms of economic growth (Moen, 2002),
to our knowledge, this link has not been investigated empirically. This may partly be due to the lack
of data concerning export activity of new firms at the country level. In order to contribute to this gap
in research, the focus in this study will be on investigating the link between firm-level export activity
of new ventures and economic growth.
Some previous empirical studies have found evidence of an impact of entrepreneurship on economic
growth (e.g. van Stel, 2006). We expect that in particular export-oriented entrepreneurship makes a
significant contribution to national economic growth. As argued in the Introduction, this is related to
(assumed) higher skill levels of exporting entrepreneurs, thereby contributing to more intense levels
of competition in the economy and increasing the innovative capacity of economies (see also Hes-
sels, 2006, for empirical evidence of the link between export activity of small firms and innovation).
In combining the potential benefits of export activity for new ventures (e.g. in terms of financial
gains or competence development) and the potential for knowledge spillovers to the rest of the econ-
omy, we hypothesize that export activity among new ventures is more positively related to national
economic growth than entrepreneurial activity in general. Furthermore, we expect that the relation-
ship between export orientation among new ventures and economic growth may differ for different
groups of countries along their level of economic development. Therefore, we will investigate in this
paper whether the presence of export-oriented entrepreneurship is a more important determinant of
national economic growth than entrepreneurial activity in general, taking into account a country’s
level of economic development. This will be explained further in the next section.
3. Methodology
3.1 Data and sample
Data on entrepreneurial activity and export-oriented entrepreneurship are taken from the the Global
Entrepreneurship Monitor (GEM). We use a sample of 36 countries participating in GEM in 2002.
The GEM is a world-wide research project aimed at describing and analyzing entrepreneurial activity
and the institutional conditions to which this is subjected in a large number of countries. Data is col-
lected through adult population surveys that are conducted in participating countries. In all participat-
ing countries representative samples of randomly selected adults (at least 2,000 per country) are sur-
veyed each year. The GEM project offers comparable data across countries, since entrepreneurial ac-
tivity is consistently measured in a harmonized way across a large number of countries (Reynolds et
al., 2005).
9
Within the framework of GEM a TEA (Total early-stage Entrepreneurial Activity) index has been
developed in order to measure early-stage entrepreneurial activity. The TEA is a combination of nas-
cent entrepreneurs (those currently involved in concrete activities to start up a new business) and
owners of young businesses (those currently owning a business that is less than 42 months old).
Whereas a large number of organization publish international comparative export data such as the
WTO, OECD, UN (Commodity Trade Statistics Database-COMTRADE) and Eurostat, there are no
official international comparative export statistics relating to exports by small and new firms. In this
respect the Global Entrepreneurship Monitor initiative fills an important gap by providing a harmo-
nized measure for export orientation of entrepreneurs across countries.
In the current study we investigate whether the presence of export-oriented entrepreneurs is a more
important determinant of national economic growth than entrepreneurial activity in general. Our em-
pirical analysis builds on a previous article by van Stel et al. (2005) in which it is investigated
whether Total early-stage Entrepreneurial Activity (TEA) -as defined below- influences GDP growth
for a sample of 36 countries. The authors find that the TEA indeed affects economic growth but that
the influence depends on the level of economic development. In particular the contribution to eco-
nomic growth is found to be stronger for more highly developed countries, as compared to develop-
ing countries. The authors argue that this may be related to higher human capital levels of entrepre-
neurs in higher developed countries.
In the current paper we will perform a similar regression analysis but next to the general TEA, we
will also use the TEA export rate, the TEA medium export rate and the TEA high export rate as in-
dependent variables and compare their impact on economic growth with the impact of the general
TEA index. The data and model used in this study are described below.
Next to data on early-stage entrepreneurial activity (TEA) and early-stage export activity (TEA ex-
port) from the GEM we also use data from secondary sources on GDP growth, per capita income,
and the growth competitiveness index (GCI). The sources and definitions of all variables we use are
described below.
3.2 Measures
Total early-stage Entrepreneurial Activity (TEA)
TEA is defined as the percentage of adult population that is either actively involved in starting a new
venture or is the owner/manager of a business that is less than 42 months old. Data on total early-
stage entrepreneurial activity are taken from the GEM Adult Population Survey for 2002.
Total early-stage Export Activity (TEA Export)
The TEA export rate is defined as the percentage of adult population that is either actively involved
in starting a new venture or is the owner/manager of a business that is less than 42 months old, and
has customers abroad. In our analysis we distinguish between medium export rate (1-25% of cus-
tomers live abroad) and TEA high export rate (26 100% of customers live abroad). Data on early-
stage export activity is also taken from the GEM Adult Population Survey 2002.
Growth of GDP (?GDP)
Real GDP growth rates are taken from the IMF World Economic Outlook database of the Interna-
tional Monetary Fund, version September 2005.
Per capita income (GNIC)
10
Gross national income per capita 2001 is expressed in (thousands of) purchasing power parities per
US$, and these data are taken from the 2002 World Development Indicators database of the World
Bank.
Growth Competitiveness Index (GCI)
Data on the GCI 2001 are taken from page 32 of The Global Competitiveness Report 2001–2002.
The GCI is constituted of the following three main factors assessing a country’s potential for eco-
nomic growth: the quality of the macro-economic environment, the state of the public institutions
and the level of technology. For further details about this index we refer to McArthur and Sachs
(2002).
3.3 Analysis
We investigate whether export-oriented entrepreneurship may be considered a determinant of eco-
nomic growth, next to technology, public institutions and the macroeconomic environment (which
are captured in a combined way by the GCI). As both entrepreneurship and the factors underlying the
GCI are assumed to be structural characteristics of an economy, we do not want to explain short term
economic growth but rather growth in the medium term. Therefore we choose average annual real
GDP growth over a period of four years (2002–2005) as the dependent variable in this study. Follow-
ing van Stel et al. (2005) we use (the log of) initial income level of countries, to correct for catch-up
effects, and lagged growth of GDP, to correct for reversed causality effects, as additional control
variables.
Following van Stel et al. (2005), we allow for the possibility of different effects of highly developed
and developing countries. In addition we also test whether the effect of TEA is different for transi-
tion countries.
1
TEA rates may reflect different types of entrepreneurs in countries with different de-
velopment levels. In particular human capital levels may differ between higher and lower developed
countries, implying different impacts on economic growth. This is tested by defining separate TEA
variables for different groups of countries (rich versus poor; highly developed versus transition ver-
sus developing). Our model is represented by Equations (1) and (2). These equations are estimated
separately by OLS. The hypothesis of a more positive effect for rich countries corresponds to coeffi-
cient b
1
(b
2
) being larger than coefficient c
1
(c
2
). Furthermore, the hypothesis that export-oriented en-
trepreneurs contribute more to national economic growth than entrepreneurs in general corresponds
to b
2
(c
2
) being larger than b
1
(c
1
).
?GDP
it
= a + b
1
TEA
rich
i,t-1
+ c
1
TEA
poor
i,t-1
+ d log(GNIC
i,t-1
) + e GCI
i,t-1
+ ƒ ?GDP
i,t-1
+ ?
it
(1)
?GDP
it
= a + b
2
TEA_export
rich
i,t-1
+ c
2
TEA_export
poor
i,t-1
+ d log(GNIC
i,t-1
) (2)
+ e GCI
i,t-1
+ ƒ ?GDP
i,t-1
+ ?
it
To illustrate the data at hand, Table 1 provides the TEA rates and the TEA medium export and high
export rates in 2002 as well as the average annual growth rates of GDP over the period 2002-2005.
1
The 36 countries in our sample are: Argentina
D
, Australia, Belgium, Brazil
D
, Canada, Chile
D
, China
T
, Taiwan, Den-
mark, Finland, France, Germany, Hong Kong, Hungary
T
, Iceland, India
D
, Ireland, Israel, Italy, Japan, Korea, Mexico
D
,
Netherlands, New Zealand, Norway, Poland
T
, Russia
T
, Singapore, Slovenia
T
, South Africa
D
, Spain, Sweden, Switzerland,
Thailand
D
, United Kingdom and United States. Mark
D
indicates developing country while mark
T
indicates a transition
country. In the categorisation rich versus poor, eleven of the twelve countries marked as
D
or
T
are classified as (rela-
tively) poor, the exception being Slovenia.
11
Table 1: Entrepreneurial activity rates (2002) and GDP growth rates for 36 countries
TEA rate TEA me-
dium export
rate (1-25%
foreign cus-
tomers)
TEA high
export rate
(>25% for-
eign custom-
ers)
Average
GDP growth
rate 2002-
2005 (%)
Argentina 14.15 0.00 1.82 3.60
Australia 8.68 3.29 0.76 3.18
Belgium 2.99 1.33 0.88 1.53
Brazil 13.53 0.50 0.28 2.65
Canada 8.82 4.23 1.86 2.73
Chile 15.68 4.95 2.86 4.48
China 12.34 3.37 0.92 9.08
Denmark 6.53 1.82 1.12 1.45
Finland 4.56 2.19 1.33 2.50
France 3.20 1.64 0.71 1.43
Germany 5.16 3.62 0.95 0.58
Hong Kong 3.44 1.17 1.17 4.88
Hungary 6.64 1.25 0.51 3.50
Iceland 11.32 5.54 1.81 3.28
India 17.88 0.08 0.17 6.63
Ireland 9.14 4.57 2.00 5.00
Israel 7.06 2.03 1.04 2.28
Italy 5.90 1.36 0.81 0.48
Japan 1.81 0.31 0.05 1.45
Korea 14.52 5.21 2.01 4.63
Mexico 12.40 1.59 1.91 2.40
Netherlands 4.62 1.46 0.78 0.60
New Zealand 14.01 5.84 3.08 3.85
Norway 8.69 3.16 1.71 1.88
Poland 4.44 0.99 0.21 3.40
Russia 2.52 0.11 0.34 6.18
Singapore 5.91 2.08 1.49 4.23
Slovenia 4.63 1.78 1.13 3.58
South Africa 6.54 0.97 1.01 3.60
Spain 4.59 1.66 0.64 2.98
Sweden 4.00 0.99 0.75 2.43
Switzerland 7.13 2.83 2.12 0.60
Taiwan 4.27 0.90 0.70 4.08
Thailand 18.90 4.57 1.52 5.45
United Kingdom 5.37 1.67 0.83 2.40
United States 10.51 1.65 0.50 3.00
Mean 8.11 2.24 1.16 3.22
Standard deviation 4.59 1.64 0.73 1.84
Sources: GEM and IMF.
12
4. Results
The results of our empirical exercises are in Tables 2-5. In Table 2 the regression results of the im-
pact of the general TEA index are presented (see Equation 1), while Tables 3, 4 and 5 show the re-
sults using the TEA export rate, TEA medium export rate and TEA high export rate as main inde-
pendent variables (see Equation 2).
Table 2: Explaining economic growth from TEA rate; N=36.
TEA Model 1 Model 2 Model 3
Constant
19.6 **
(4.2)
26.1 **
(3.0)
22.2 **
(2.5)
TEA
.047
(0.8)
TEA rich
.087 *
(1.8)
TEA poor
-.005
(0.1)
TEA highly developed
.11 **
(2.2)
TEA transition
.19
(1.4)
TEA developing
.023
(0.2)
log (GNIC)
-2.2 **
(2.8)
-2.8 **
(2.7)
-2.4 **
(2.6)
GCI
.62
(0.7)
.64
(0.8)
.63
(0.7)
lagged gdp growth
.37 **
(2.9)
.30 **
(2.1)
.22
(1.2)
R
2
0.626 0.636 0.662
adjusted R
2
0.577 0.576 0.592
Absolute heteroskedasticity-consistent t-values are between brackets. Dependent variable is average annual
growth of GDP over the period 2002-2005. TEA is Total Entrepreneurial Activity rate (Global Entrepreneur-
ship Monitor); GCI is growth competitiveness index 2001 (Growth Competitiveness Report); GNIC is per
capita income of 2001; Lagged GDP growth is average annual growth of GDP over the period 1998-2001.
* Significant at a 0.10 level.
** Siginificant at a 0.05 level
13
Table 3: Explaining economic growth from TEA export rate (1-100% of customers from
abroad); N=36
TEA export Model 1 Model 2 Model 3
Constant
22.3 **
(6.2)
22.1 **
(4.4)
22.3 **
(6.0)
TEA_export .13 *
(1.8)
TEA_export rich .13
(1.6)
TEA_export poor .14
(1.0)
TEA_export
highly developed
.16 *
(1.9)
TEA_export
transition
.47 **
(2.1)
TEA_export
developing
.10
(0.9)
log (GNIC)
-2.4 **
(3.5)
-2.4 **
(3.0)
-2.4 **
(3.6)
GCI
.54
(0.6)
.54
(0.6)
.66
(0.7)
lagged gdp growth
.33 **
(2.6)
.33 **
(2.4)
.24
(1.3)
R
2
0.639 0.639 0.658
adjusted R
2
0.592 0.578 0.587
Absolute heteroskedasticity-consistent t-values are between brackets. Dependent variable is average annual
growth of GDP over the period 2002-2005. TEA is Total Entrepreneurial Activity rate (Global Entrepreneur-
ship Monitor); GCI is growth competitiveness index 2001 (Growth Competitiveness Report); GNIC is per
capita income of 2001; Lagged GDP growth is average annual growth of GDP over the period 1998-2001.
* Significant at a 0.10 level.
** Siginificant at a 0.05 level
14
Table 4: Explaining economic growth from TEA medium export rate (1-25% of custom-
ers from abroad); N=36
TEA medium export Model 1 Model 2 Model 3
Constant
22.3 **
(6.3)
21.8 **
(4.3)
21.9 **
(5.5)
TEA_medium export .17 *
(1.7)
TEA_medium export rich .16
(1.3)
TEA_medium export poor .20
(1.1)
TEA_medium export
highly developed
.19
(1.5)
TEA_medium export tran-
sition
.56 *
(1.7)
TEA_medium export de-
veloping
.14
(0.8)
log (GNIC)
-2.4 **
(3.5)
-2.3 **
(3.0)
-2.4 **
(3.4)
GCI
.53
(0.6)
.51
(0.6)
.61
(0.7)
lagged gdp growth
.32 **
(2.5)
.33 **
(2.3)
.25
(1.3)
R
2
0.636 0.637 0.650
adjusted R
2
0.589 0.576 0.578
Absolute heteroskedasticity-consistent t-values are between brackets. Dependent variable is average annual
growth of GDP over the period 2002-2005. TEA is Total Entrepreneurial Activity rate (Global Entrepreneur-
ship Monitor); GCI is growth competitiveness index 2001 (Growth Competitiveness Report); GNIC is per
capita income of 2001; Lagged GDP growth is average annual growth of GDP over the period 1998-2001.
* Significant at a 0.10 level.
** Siginificant at a 0.05 level
15
Table 5: Explaining economic growth from TEA high export rate (26-100% of customers
from abroad); N=36
TEA high export Model 1 Model 2 Model 3
Constant
22.2 **
(5.7)
23.0 **
(4.3)
23.4 **
(5.6)
TEA_high export
.36
(1.4)
TEA_ high export rich
.42 *
(1.7)
TEA_ high export poor
.30
(0.7)
TEA_ high export
highly developed
.53 *
(1.8)
TEA_ high export
transition
1.80 **
(2.0)
TEA_ high export
developing
.26
(0.7)
log (GNIC)
-2.5 **
(3.4)
-2.5 **
(3.1)
-2.7 **
(3.7)
GCI
.65
(0.8)
.64
(0.7)
.88
(1.0)
lagged gdp growth
.36 **
(2.9)
.35 **
(2.5)
.24
(1.4)
R
2
0.637 0.637 0.666
adjusted R
2
0.590 0.577 0.597
Absolute heteroskedasticity-consistent t-values are between brackets. Dependent variable is average annual
growth of GDP over the period 2002-2005. TEA is Total Entrepreneurial Activity rate (Global Entrepreneur-
ship Monitor); GCI is growth competitiveness index 2001 (Growth Competitiveness Report); GNIC is per
capita income of 2001; Lagged GDP growth is average annual growth of GDP over the period 1998-2001.
* Significant at a 0.10 level.
** Siginificant at a 0.05 level
16
The Tables 2-5 reveal as hypothesized, that the presence of export-oriented entrepreneurs indeed
seems to be more important for achieving GDP growth than entrepreneurship in general. Comparing
the coefficients of the various TEA rates across the tables, we see that in each of the three model
variants the impact of TEA Export is higher compared to the impact of TEA in general. For instance,
the TEA rate has a coefficient of 0.047 (Table 2), while the coefficients of the TEA export rate, the
TEA medium export rate and the TEA high export rate are 0.13, 0.17 and 0.36, respectively. The
measures for TEA export also display higher t-values as compared to TEA in general.
2
As indicated before, an important element in our analysis is to distinguish between different groups
of countries. Table 2 confirms, in accordance with earlier findings of van Stel et al. (2005), that it is
important to distinguish between different groups of countries along their level of economic devel-
opment in investigating the relationship between entrepreneurship and economic growth. For exam-
ple, the table reveals that for rich countries the impact of entrepreneurial activity is significantly posi-
tive, whereas the impact for poor countries is effectively zero.
3
Looking at the results for our export
variables (Tables 3-5) a first finding is that having more entrepreneurs with export orientation seems
to be important in highly developed as well as in transition countries. The effect is strongest for tran-
sition economies. The magnitude and the statistical significance of the estimated coefficient as well
as the t-values indicate a stronger impact for transition economies compared to highly developed or
developing countries (see Tables 3-5). In transition countries the TEA high export rate shows the
strongest positive association with GDP Growth (Table 5), but the TEA medium export rate is also
significant positive related to GDP growth (Table 4).
For highly developed countries we find a significant positive association for high export involvement
of entrepreneurs with economic growth but no evidence of an impact for medium export involve-
ment. It seems that only a substantial amount of export activity by entrepreneurs contributes to
macro-economic growth. This could mean that exporting entrepreneurs have to pass a threshold level
of export activity in order to actually increase their human capital levels (e.g. by learning from the
experience gained abroad) so that they contribute to growth.
Finally, we find no evidence of an impact of new ventures export activity on GDP growth in devel-
oping countries. Van Stel et al. (2005) find no impact of entrepreneurship in general on economic
growth in developing economies. For these economies we also find no evidence that export-oriented
entrepreneurs, contribute to economic growth. It may be that human capital levels of entrepreneurs in
these countries are too low.
5. Conclusion & Discussion
This paper investigates whether the presence of export-oriented entrepreneurs is a more important
determinant of national economic growth than entrepreneurial activity in general. We also compare
the extent of influence of export-oriented entrepreneurship on GDP growth for three groups of coun-
2
Please note that ideally - in order to test whether export-oriented entrepreneurship makes a more important contribution
to economic growth than entrepreneurship in general - we would like to include the TEA and the TEA_export variables
in one and the same model. Indeed we did perform exercises including TEA and TEA_export in a single model. The re-
sults of these analyses revealed that the magnitude of the regression coefficients is similar to the coefficients reported in
Tables 2-5 for the separate models. However, because of multicollinearity t-values are lower in these single models. In
fact, the correlation coefficients between TEA on the one hand and the various TEA_export variables on the other hand
are above 0.6. Because of these multicollinearity problems, we have used separate models in our analysis. Nevertheless,
since the magnitude of the regression coefficients when using a single model is comparable to using separate models, we
feel that the results reported in Tables 2-5 are quite robust.
3
Van Stel et al. (2005) refer to a possible lack of larger companies in these poorer countries as a possible explanation for
the zero effect of entrepreneurial activity.
17
tries: highly developed economies, transition economies and developing economies. The distinction
between these three groups of countries relates to the shift from the managed to the entrepreneurial
economy (Audretsch and Thurik, 2001). In particular, the nature of entrepreneurship is likely to be
different for higher and lower developed countries hence the impact on economic growth may also
differ (van Stel et al., 2005).
For the groups of highly developed countries and transition countries we find that export-oriented en-
trepreneurship contributes more strongly to macro-economic growth than entrepreneurial activity in
general. The effect is particularly strong for transition economies. The results of our study do not
provide evidence of a relationship between new ventures’ export orientation and economic growth
for developing countries.
The findings of this study suggest that in developed countries high export orientation among new
ventures contributes to economic growth. In developed countries, technologies are in general more
widely available than in less developed countries and enterprises increasingly specialize in knowl-
edge-based activities. Therefore, new ventures’ foreign operations may be based on the presence of
specific technological knowledge, skills and valuable resources that are available within the firm
(e.g. Oviatt & McDougall, 1997). For these ventures international expansion is viable and sometimes
even necessary for survival, and they are likely to display high international involvement. Further-
more, these ventures are likely to develop specific skills (including innovative skills) through their
export activity, and may, therefore, have a particularly strong impact on economic growth. That we
find no impact on economic growth for entrepreneurs’ medium export orientation in developed
economies may indicate that exporting entrepreneurs that start with moderate levels of exporting
have to pass a threshold level of export activity, before they actually increase their human capital
levels and other resources (e.g. by learning from the experience gained abroad, by getting access to
knowledge and technology in foreign markets) so that they contribute to growth.
From a policy perspective our findings suggest that it may be beneficial for governments in devel-
oped economies to focus on stimulating high export ambitions among new ventures. Also, govern-
ments could introduce entrepreneurs’ export growth possibilities and ambitions as a selection crite-
rion in export promotion programs.
In our study we find a particular strong impact of export-oriented entrepreneurship on economic
growth for transition economies. Transition economies have a highly educated labor force, a rela-
tively low level of GDP, and a highly turbulent economy. One explanation for the relatively strong
positive impact we find may be that especially the high degree of environmental dynamism in these
countries positively affects the international orientation of new firms and the development of compe-
tences. Research suggests that environmental dynamism and the ensuing turbulence can stimulate or
even push new ventures to internationalize their sales and to intensify their export activities (Anders-
son et al., 2004; McDougall et al., 1994; Oviatt & McDougall, 1994; Zahra et al., 1997). Our results
suggest that in the kind of turbulent environment that is characteristic for transition economies ex-
porting entrepreneurs may have a particularly strong impact on competition, innovation and conse-
quently economic growth.
The results of our study reveal that export-oriented new ventures do not seem to make a significant
contribution to economic growth in developing countries. Because of the relatively high rate of ne-
cessity entrepreneurship and because of the level of economic development in these countries, new
entrepreneurs – also export-oriented entrepreneurs – will tend to have low levels of human capital
and will mainly be active in low-technology and low value added economic activities, such as agri-
culture. This may result in a low level of benefits and development of skills and competences at the
firm level (Zahra et al. 2000) and may consequently explain that these firms do not so much contrib-
ute to macro-economic growth. Our results underline the suggestions made by Wennekers et al.
(2005) that, because of their stage of development, low-income countries should not have a strong
18
focus on the promotion of new business creation and that it may be more beneficial for these coun-
tries to foster the exploitation of scale economies, e.g. through foreign direct investment.
Limitations of this study include the small sample size and the focus on export orientation only and
not on other modes of internationalization. Future research could benefit greatly from longitudinal
data and from including other modes of internationalization.
19
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21
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doc_204377923.pdf
Within this data relating to export orientation among new ventures and economic growth.
1
H200626
Export Orientation among New
Ventures and Economic Growth
S. Jolanda A. Hessels
André van Stel
Zoetermeer, December, 2006
2
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3
4
Export Orientation among New Ventures and Economic Growth
S. Jolanda A. Hessels
A
André van Stel
A, B, C
A
EIM Business and Policy Research, Zoetermeer, The Netherlands
B
Cranfield University School of Management, Cranfield, UK
C
Erasmus University Rotterdam, The Netherlands
Abstract:
While it is generally acknowledged that entrepreneurship as well as export activity may both be im-
portant strategies for achieving national economic growth, it has remained unclear how export activ-
ity among new ventures is related to economic growth. This paper investigates whether the presence
of export-oriented entrepreneurs is a more important determinant of economic growth than entrepre-
neurial activity in general. We focus on the national or macro-level and use data from the Global En-
trepreneurship Monitor for a sample of 36 countries. An important advantage of using the macro-
level is that indirect effects of exporting entrepreneurs that reach further than the performance of
these firms themselves (e.g. spillovers) are captured in the analysis. To our knowledge, no attempt
has been made thus far to link international activity of early-stage ventures to macro-economic out-
comes. Our results suggest that export-oriented entrepreneurship is indeed more important for
achieving high economic growth rates than entrepreneurial activity in general. This suggests that in-
ternational activity by small and new firms strongly contributes to higher levels of competition and,
consequently, to the emergence of highly dynamic economies and higher levels of economic growth.
Version: December 2006
Keywords: entrepreneurship, export, economic growth, Global Entrepreneurship Monitor
JEL-classification: F23, L25, L26, O47, O57
Document
M-#156161-v2-Export_Orientation_among_New_Ventures_and_Economic_Growth.DOC
Correspondence: Jolanda Hessels, [email protected]
Acknowledgement: We are grateful to Siri Terjesen, Roy Thurik, and participants at a Max Plan-
ck Institute of Economics seminar (Jena, 28 September 2006) and the ISBE conference (Cardiff,
31 October-2 November 2006), for providing us with helpful comments and suggestions.
5
1. Introduction
It is generally acknowledged that export is an important strategy for achieving economic growth.
This is true for developed as well as developing countries. Both enterprises and nations gain from
exporting (Almeida Couto et al., 2006). For example, enterprises may benefit from exporting activ-
ity, because exports contribute to business growth (Zahra et al., 1997). Also, the importance of ex-
ports for national economies has been emphasized in previous research. For example it has been ar-
gued that exporting firms are more productive than non-exporting firms (Girma et al., 2004). How-
ever, previous research with respect to the importance of export for national economies has strongly
focused on established corporations and large multinational enterprises. Less attention has been paid
to the role of start-ups in international markets (Audretsch & Thurik, 2000). In this study we attempt
to address this gap by examining whether export orientation of new ventures makes a significant
contribution to national economic growth.
Besides export activity, entrepreneurship is also considered an important mechanism of economic
development (Schumpeter 1934; Wennekers and Thurik 1999; Baumol 2002) and for developing
competitive economies (Hawkins, 1993). For example, entrepreneurs may contribute to economic
growth because they are important for introducing or generating innovations (Autio, 1994; Acs and
Audretsch, 2003). In particular, entrepreneurs contribute to a process of variety and selection where
many individual entrepreneurs pursue an observed market opportunity and try to economically ex-
ploit a new idea. However, due to an increased uncertainty in the global knowledge economy, it is
not clear a priori which of these different new ideas are economically viable (Audretsch and Thurik,
2000). Only after setting up a new business, entrepreneurs find out what consumers prefer and hence,
whether their new ideas are economically viable. Most of these new ideas will not be economically
viable but some of them will be. The successful ideas often turn into innovations. When there are
more entrepreneurs pursuing new ideas, the level of competition is higher and the process of variety
(i.e. a large number of different new ideas being pursued) and selection will be more intense. From
an economy-wide point of view this higher intensity increases the probability of actual innovations
taking place (i.e. of economically viable ideas being ‘selected’ through the market). Several studies
confirm a positive impact of entrepreneurship on national economic growth for developed countries
(see e.g. van Stel, 2006).
Within the field of entrepreneurship there is increased attention for the topic of “international entre-
preneurship”. International entrepreneurship concentrates, among others, on studying firms that are
involved in international activity from inception or shortly thereafter. Such firms are commonly re-
ferred to as ‘born globals’ (Rennie, 1993; Knight & Cavusgil, 1996), ‘international new ventures’
(Oviatt & McDougall, 1994) or ‘global start-ups’ (Universiteit Twente & Universidad Miguel
Hernández de Elche, 2005). There is evidence that the number of born globals or international new
ventures is increasing (Oviatt & McDougall, 1994). Born global firms are thought to be of impor-
tance in terms of innovation and employment (Moen, 2002). However, only a few empirical studies
have investigated the effect of export on business performance among new ventures (Bloodgood et
al., 1996; McDougall & Oviatt, 1996; Zahra et al. 2000). Furthermore, whereas it is generally ac-
knowledged that internationally oriented new ventures are important in terms of economic growth
(Moen, 2002) to our knowledge, this link has not been investigated empirically. We aim to extend
the literature on new venture export activity and growth by focusing on the country level. In particu-
lar the present paper builds on the assumption that exporting entrepreneurs develop specific skills
(including innovative skills) through their export activity and, consequently, a high number of ex-
porting entrepreneurs may be even more conducive to the process of variety and selection described
above, compared to high numbers of domestically operating entrepreneurs. In other words, high
6
numbers of exporting entrepreneurs may have a particularly strong impact on competition, innova-
tion and economic growth.
To summarize, in studying the relationship between entrepreneurial activity and growth we expect
that in particular export-oriented entrepreneurship will make an important contribution to economic
growth. Therefore, we will investigate in this paper whether the presence of export-oriented entre-
preneurship makes a more important contribution to national economic growth than entrepreneurial
activity in general. This issue is of specific interest to policy-makers since governments in many
countries have developed programs that focus on the promotion of export activity.
The paper is structured as follows. Section 2 presents a review of the literature on the link between
export and entrepreneurship on the one hand and economic growth on the other hand. In Section 3
we will present the data and research method used for the empirical analysis and in Section 4 we pre-
sent the results of our empirical analysis of the association of the presence of export-oriented entre-
preneurs and national economic growth. Finally, in Section 5 we discuss the outcomes and conclu-
sions.
2. Theoretical background
In research there has been an increased focus over the past 15 years on international operations of
new ventures (Oviatt & McDougall, 1994). Bloodgood et al. (1996) state that there are two main rea-
sons for why new ventures may seek international presence. The first is that industry conditions may
require an international presence to be competitive. The second is that a venture may seek a presence
in international markets because it possesses unique resources on which it may capitalize (e.g. man-
agement experience in global markets or technological capabilities).
International activities of new ventures, such as born globals (Rennie, 1993; Knight and Cavusgil,
1996) or international new ventures (Oviatt & McDougall, 1994) are studied within the field of in-
ternational entrepreneurship. McDougall & Oviatt (2000) have classified international entrepreneur-
ship as a new emergent field of study. They define international entrepreneurship as: “ (…) a combi-
nation of innovative, pro-active, and risk seeking behaviour that crosses national borders and is in-
tended to create value in organizations” (McDougall & Oviatt, 2000: 903).
Within the field of international entrepreneurship, the internationalisation of firms is characterized as
“a rapid process of international expansion from inception, using a range of market entry modes in
multiple markets” (Jones & Coviello, 2005). However, export activity is the most common mode of
foreign operation among new ventures (Zahra et al., 1997). Export activities are considered to be the
first and most common step in a firm’s international expansion (Young et al., 1988). Therefore, the
focus in this study is on export activity of early-stage entrepreneurs and not on other modes of inter-
nationalization. One reason why exporting is an important means for international expansion among
newly established firms is that export does not require major capital investments (Erramilli &
D’Souza, 1993; Root, 1994) and has lower commercial and financial risk as compared to for exam-
ple foreign direct investment (Jaffe & Pasternak, 1994). Even though small and new firms are in-
creasingly involved in international markets (e.g. Oviatt & McDougall, 1994) small exporters still
account only for a minor share of total exports in many developed and developing countries (Jaffe &
Pasternak, 1994).
The study of internationalization of new ventures crosses the field of international business and the
field of entrepreneurship. On the one hand, research in international business, that tended to mainly
focus on large established multinational companies, is broadening its scope and increasingly incorpo-
rating entrepreneurial firms (McDougall & Oviatt, 2000). International entrepreneurship is high-
lighted as an important emerging research area in the field of international business (Wright & Ricks,
7
1994). On the other hand, following the increasing number of new venture firms that are internation-
alizing their business activities early in their life cycles (Oviatt & McDougall, 1994; Zahra et al.,
2000), international activities are of increasing interest to researchers in entrepreneurship (McDou-
gall & Oviatt, 2000).
Exporting activity is of importance for both enterprises and nations (Lages & Montgomery, 2004;
Almeida Couto et al., 2006). The merits of export at the firm level are well reported in literature. For
example, it is widely acknowledged in literature that exports are important for expanding sales,
achieving business growth and for improving financial performance (Edmunds & Khoury, 1986;
Daniels & Bracker, 1989; Zahra et al., 1997). At the firm level exports may also contribute to inno-
vation, enhancement of managerial skills, diversification of business risks, the extension of the life
cycles of products and absorbing excess capacity (Daniels & Bracker, 1989; Katsikeas et al., 2000;
Lages & Montgomery, 2004). Furthermore, through market diversification, exporting provides an
opportunity for firms to become less dependent on the domestic market. Also firms may gain experi-
ence from export activity, which may lead them to explore new foreign markets and get involved in
other forms of internationalization, such as licensing, joint ventures or direct investment abroad
(Lages & Montgomery, 2004).
It is also believed that newly established firms may benefit from exporting in terms of improving a
new venture’s competitive and financial performance (Zahra et al., 1997). However, research on in-
ternational activities of new ventures has focused mainly on antecedents of early-stage international
activity in trying to explain the emergence of these internationally oriented new firms or the early in-
ternationalisation of firms. Only a few empirical studies have focused on identifying economic con-
tributions of early-stage firms in terms of growth and profitability (Bloodgood et al., 1996; McDou-
gall & Oviatt, 1996; Zahra et al. 2000). These studies find only weak evidence of a link between in-
ternationalization and performance. For example Bloodgood et al. (1996) that focus on 61 high-
potential new ventures in the U.S., found that internationalization was significantly, but only margin-
ally, related to earnings after two years, and was not related to sales growth. McDougall & Oviatt
(1996) found, for their sample of 62 U.S. new venture manufacturers in the computer and communi-
cations equipment industries, that higher levels of export sales were related to higher relative market
share two years later, but they did not find evidence of a direct significant relation between percent-
age of foreign sales and subsequent return on investment. Because of this weak empirical foundation
more research is needed on the direct as well as indirect effects of new ventures’ international opera-
tions on economic performance (Zahra et al., 2000).
Furthermore, export activity may not only generate financial benefits for the firm, but is likely to re-
sult in increased knowledge and higher human capital levels, also for small and new firms (Lu &
Beamish, 2001). For example, in case of entry into foreign markets firms often have to develop new
resources and capabilities since the knowledge and capabilities that the firm has developed for the
local or national market are often not suitable to operations abroad (Lu & Beamish, 2001). Export
may also result in the accumulation of knowledge of foreign markets and in the development of new
organizational capabilities through the accumulation of experience abroad (Johanson & Vahlne,
1977).
When many new firms engage in export activity, the chance that the knowledge gained through this
activity spills over to other firms may be considered relatively high. The reason for this is that small
and new firms have a lot of business contacts with other firms (for instance through cooperation or
through buyer-supplier relations) which may lead to exchange of knowledge. Via these so-called
spillovers knowledge may accumulate not only at the firm level (i.e. the exporting firm) but also at
the aggregate level (i.e. the firm population in general).
We intend to contribute to the empirical literature on new ventures’ export activity and growth by fo-
cusing on the macro- or national level. An important advantage of using the macro-level is that indi-
8
rect effects of exporting entrepreneurs that reach further than the performance of these firms them-
selves are captured in the analysis. In particular economy-wide effects of innovations made by ex-
porting firms (e.g. knowledge spillovers) are taken into account. To our knowledge, no attempt has
been made thus far to link international activity of early-stage ventures to macro-economic out-
comes.
At the national level, and specifically from the point of view of national governments, exporting ac-
tivity is crucial because it contributes to economic development of nations (Lages & Montgomery,
2004). For example, exports have a positive impact on the national amount of foreign exchange re-
serves and on national prosperity, and contributes to the development of national industries, to im-
proved productivity and to the creation of employment. The importance of exports for national
economies has been emphasized in previous research (Girma et al., 2004). However, previous re-
search regarding to the importance of export for national economies has strongly focused on estab-
lished corporations and large multinational enterprises and less attention has been paid to the role of
newly established firms (Audretsch & Thurik, 2000). Whereas it is generally acknowledged that in-
ternational orientation among new ventures is important in terms of economic growth (Moen, 2002),
to our knowledge, this link has not been investigated empirically. This may partly be due to the lack
of data concerning export activity of new firms at the country level. In order to contribute to this gap
in research, the focus in this study will be on investigating the link between firm-level export activity
of new ventures and economic growth.
Some previous empirical studies have found evidence of an impact of entrepreneurship on economic
growth (e.g. van Stel, 2006). We expect that in particular export-oriented entrepreneurship makes a
significant contribution to national economic growth. As argued in the Introduction, this is related to
(assumed) higher skill levels of exporting entrepreneurs, thereby contributing to more intense levels
of competition in the economy and increasing the innovative capacity of economies (see also Hes-
sels, 2006, for empirical evidence of the link between export activity of small firms and innovation).
In combining the potential benefits of export activity for new ventures (e.g. in terms of financial
gains or competence development) and the potential for knowledge spillovers to the rest of the econ-
omy, we hypothesize that export activity among new ventures is more positively related to national
economic growth than entrepreneurial activity in general. Furthermore, we expect that the relation-
ship between export orientation among new ventures and economic growth may differ for different
groups of countries along their level of economic development. Therefore, we will investigate in this
paper whether the presence of export-oriented entrepreneurship is a more important determinant of
national economic growth than entrepreneurial activity in general, taking into account a country’s
level of economic development. This will be explained further in the next section.
3. Methodology
3.1 Data and sample
Data on entrepreneurial activity and export-oriented entrepreneurship are taken from the the Global
Entrepreneurship Monitor (GEM). We use a sample of 36 countries participating in GEM in 2002.
The GEM is a world-wide research project aimed at describing and analyzing entrepreneurial activity
and the institutional conditions to which this is subjected in a large number of countries. Data is col-
lected through adult population surveys that are conducted in participating countries. In all participat-
ing countries representative samples of randomly selected adults (at least 2,000 per country) are sur-
veyed each year. The GEM project offers comparable data across countries, since entrepreneurial ac-
tivity is consistently measured in a harmonized way across a large number of countries (Reynolds et
al., 2005).
9
Within the framework of GEM a TEA (Total early-stage Entrepreneurial Activity) index has been
developed in order to measure early-stage entrepreneurial activity. The TEA is a combination of nas-
cent entrepreneurs (those currently involved in concrete activities to start up a new business) and
owners of young businesses (those currently owning a business that is less than 42 months old).
Whereas a large number of organization publish international comparative export data such as the
WTO, OECD, UN (Commodity Trade Statistics Database-COMTRADE) and Eurostat, there are no
official international comparative export statistics relating to exports by small and new firms. In this
respect the Global Entrepreneurship Monitor initiative fills an important gap by providing a harmo-
nized measure for export orientation of entrepreneurs across countries.
In the current study we investigate whether the presence of export-oriented entrepreneurs is a more
important determinant of national economic growth than entrepreneurial activity in general. Our em-
pirical analysis builds on a previous article by van Stel et al. (2005) in which it is investigated
whether Total early-stage Entrepreneurial Activity (TEA) -as defined below- influences GDP growth
for a sample of 36 countries. The authors find that the TEA indeed affects economic growth but that
the influence depends on the level of economic development. In particular the contribution to eco-
nomic growth is found to be stronger for more highly developed countries, as compared to develop-
ing countries. The authors argue that this may be related to higher human capital levels of entrepre-
neurs in higher developed countries.
In the current paper we will perform a similar regression analysis but next to the general TEA, we
will also use the TEA export rate, the TEA medium export rate and the TEA high export rate as in-
dependent variables and compare their impact on economic growth with the impact of the general
TEA index. The data and model used in this study are described below.
Next to data on early-stage entrepreneurial activity (TEA) and early-stage export activity (TEA ex-
port) from the GEM we also use data from secondary sources on GDP growth, per capita income,
and the growth competitiveness index (GCI). The sources and definitions of all variables we use are
described below.
3.2 Measures
Total early-stage Entrepreneurial Activity (TEA)
TEA is defined as the percentage of adult population that is either actively involved in starting a new
venture or is the owner/manager of a business that is less than 42 months old. Data on total early-
stage entrepreneurial activity are taken from the GEM Adult Population Survey for 2002.
Total early-stage Export Activity (TEA Export)
The TEA export rate is defined as the percentage of adult population that is either actively involved
in starting a new venture or is the owner/manager of a business that is less than 42 months old, and
has customers abroad. In our analysis we distinguish between medium export rate (1-25% of cus-
tomers live abroad) and TEA high export rate (26 100% of customers live abroad). Data on early-
stage export activity is also taken from the GEM Adult Population Survey 2002.
Growth of GDP (?GDP)
Real GDP growth rates are taken from the IMF World Economic Outlook database of the Interna-
tional Monetary Fund, version September 2005.
Per capita income (GNIC)
10
Gross national income per capita 2001 is expressed in (thousands of) purchasing power parities per
US$, and these data are taken from the 2002 World Development Indicators database of the World
Bank.
Growth Competitiveness Index (GCI)
Data on the GCI 2001 are taken from page 32 of The Global Competitiveness Report 2001–2002.
The GCI is constituted of the following three main factors assessing a country’s potential for eco-
nomic growth: the quality of the macro-economic environment, the state of the public institutions
and the level of technology. For further details about this index we refer to McArthur and Sachs
(2002).
3.3 Analysis
We investigate whether export-oriented entrepreneurship may be considered a determinant of eco-
nomic growth, next to technology, public institutions and the macroeconomic environment (which
are captured in a combined way by the GCI). As both entrepreneurship and the factors underlying the
GCI are assumed to be structural characteristics of an economy, we do not want to explain short term
economic growth but rather growth in the medium term. Therefore we choose average annual real
GDP growth over a period of four years (2002–2005) as the dependent variable in this study. Follow-
ing van Stel et al. (2005) we use (the log of) initial income level of countries, to correct for catch-up
effects, and lagged growth of GDP, to correct for reversed causality effects, as additional control
variables.
Following van Stel et al. (2005), we allow for the possibility of different effects of highly developed
and developing countries. In addition we also test whether the effect of TEA is different for transi-
tion countries.
1
TEA rates may reflect different types of entrepreneurs in countries with different de-
velopment levels. In particular human capital levels may differ between higher and lower developed
countries, implying different impacts on economic growth. This is tested by defining separate TEA
variables for different groups of countries (rich versus poor; highly developed versus transition ver-
sus developing). Our model is represented by Equations (1) and (2). These equations are estimated
separately by OLS. The hypothesis of a more positive effect for rich countries corresponds to coeffi-
cient b
1
(b
2
) being larger than coefficient c
1
(c
2
). Furthermore, the hypothesis that export-oriented en-
trepreneurs contribute more to national economic growth than entrepreneurs in general corresponds
to b
2
(c
2
) being larger than b
1
(c
1
).
?GDP
it
= a + b
1
TEA
rich
i,t-1
+ c
1
TEA
poor
i,t-1
+ d log(GNIC
i,t-1
) + e GCI
i,t-1
+ ƒ ?GDP
i,t-1
+ ?
it
(1)
?GDP
it
= a + b
2
TEA_export
rich
i,t-1
+ c
2
TEA_export
poor
i,t-1
+ d log(GNIC
i,t-1
) (2)
+ e GCI
i,t-1
+ ƒ ?GDP
i,t-1
+ ?
it
To illustrate the data at hand, Table 1 provides the TEA rates and the TEA medium export and high
export rates in 2002 as well as the average annual growth rates of GDP over the period 2002-2005.
1
The 36 countries in our sample are: Argentina
D
, Australia, Belgium, Brazil
D
, Canada, Chile
D
, China
T
, Taiwan, Den-
mark, Finland, France, Germany, Hong Kong, Hungary
T
, Iceland, India
D
, Ireland, Israel, Italy, Japan, Korea, Mexico
D
,
Netherlands, New Zealand, Norway, Poland
T
, Russia
T
, Singapore, Slovenia
T
, South Africa
D
, Spain, Sweden, Switzerland,
Thailand
D
, United Kingdom and United States. Mark
D
indicates developing country while mark
T
indicates a transition
country. In the categorisation rich versus poor, eleven of the twelve countries marked as
D
or
T
are classified as (rela-
tively) poor, the exception being Slovenia.
11
Table 1: Entrepreneurial activity rates (2002) and GDP growth rates for 36 countries
TEA rate TEA me-
dium export
rate (1-25%
foreign cus-
tomers)
TEA high
export rate
(>25% for-
eign custom-
ers)
Average
GDP growth
rate 2002-
2005 (%)
Argentina 14.15 0.00 1.82 3.60
Australia 8.68 3.29 0.76 3.18
Belgium 2.99 1.33 0.88 1.53
Brazil 13.53 0.50 0.28 2.65
Canada 8.82 4.23 1.86 2.73
Chile 15.68 4.95 2.86 4.48
China 12.34 3.37 0.92 9.08
Denmark 6.53 1.82 1.12 1.45
Finland 4.56 2.19 1.33 2.50
France 3.20 1.64 0.71 1.43
Germany 5.16 3.62 0.95 0.58
Hong Kong 3.44 1.17 1.17 4.88
Hungary 6.64 1.25 0.51 3.50
Iceland 11.32 5.54 1.81 3.28
India 17.88 0.08 0.17 6.63
Ireland 9.14 4.57 2.00 5.00
Israel 7.06 2.03 1.04 2.28
Italy 5.90 1.36 0.81 0.48
Japan 1.81 0.31 0.05 1.45
Korea 14.52 5.21 2.01 4.63
Mexico 12.40 1.59 1.91 2.40
Netherlands 4.62 1.46 0.78 0.60
New Zealand 14.01 5.84 3.08 3.85
Norway 8.69 3.16 1.71 1.88
Poland 4.44 0.99 0.21 3.40
Russia 2.52 0.11 0.34 6.18
Singapore 5.91 2.08 1.49 4.23
Slovenia 4.63 1.78 1.13 3.58
South Africa 6.54 0.97 1.01 3.60
Spain 4.59 1.66 0.64 2.98
Sweden 4.00 0.99 0.75 2.43
Switzerland 7.13 2.83 2.12 0.60
Taiwan 4.27 0.90 0.70 4.08
Thailand 18.90 4.57 1.52 5.45
United Kingdom 5.37 1.67 0.83 2.40
United States 10.51 1.65 0.50 3.00
Mean 8.11 2.24 1.16 3.22
Standard deviation 4.59 1.64 0.73 1.84
Sources: GEM and IMF.
12
4. Results
The results of our empirical exercises are in Tables 2-5. In Table 2 the regression results of the im-
pact of the general TEA index are presented (see Equation 1), while Tables 3, 4 and 5 show the re-
sults using the TEA export rate, TEA medium export rate and TEA high export rate as main inde-
pendent variables (see Equation 2).
Table 2: Explaining economic growth from TEA rate; N=36.
TEA Model 1 Model 2 Model 3
Constant
19.6 **
(4.2)
26.1 **
(3.0)
22.2 **
(2.5)
TEA
.047
(0.8)
TEA rich
.087 *
(1.8)
TEA poor
-.005
(0.1)
TEA highly developed
.11 **
(2.2)
TEA transition
.19
(1.4)
TEA developing
.023
(0.2)
log (GNIC)
-2.2 **
(2.8)
-2.8 **
(2.7)
-2.4 **
(2.6)
GCI
.62
(0.7)
.64
(0.8)
.63
(0.7)
lagged gdp growth
.37 **
(2.9)
.30 **
(2.1)
.22
(1.2)
R
2
0.626 0.636 0.662
adjusted R
2
0.577 0.576 0.592
Absolute heteroskedasticity-consistent t-values are between brackets. Dependent variable is average annual
growth of GDP over the period 2002-2005. TEA is Total Entrepreneurial Activity rate (Global Entrepreneur-
ship Monitor); GCI is growth competitiveness index 2001 (Growth Competitiveness Report); GNIC is per
capita income of 2001; Lagged GDP growth is average annual growth of GDP over the period 1998-2001.
* Significant at a 0.10 level.
** Siginificant at a 0.05 level
13
Table 3: Explaining economic growth from TEA export rate (1-100% of customers from
abroad); N=36
TEA export Model 1 Model 2 Model 3
Constant
22.3 **
(6.2)
22.1 **
(4.4)
22.3 **
(6.0)
TEA_export .13 *
(1.8)
TEA_export rich .13
(1.6)
TEA_export poor .14
(1.0)
TEA_export
highly developed
.16 *
(1.9)
TEA_export
transition
.47 **
(2.1)
TEA_export
developing
.10
(0.9)
log (GNIC)
-2.4 **
(3.5)
-2.4 **
(3.0)
-2.4 **
(3.6)
GCI
.54
(0.6)
.54
(0.6)
.66
(0.7)
lagged gdp growth
.33 **
(2.6)
.33 **
(2.4)
.24
(1.3)
R
2
0.639 0.639 0.658
adjusted R
2
0.592 0.578 0.587
Absolute heteroskedasticity-consistent t-values are between brackets. Dependent variable is average annual
growth of GDP over the period 2002-2005. TEA is Total Entrepreneurial Activity rate (Global Entrepreneur-
ship Monitor); GCI is growth competitiveness index 2001 (Growth Competitiveness Report); GNIC is per
capita income of 2001; Lagged GDP growth is average annual growth of GDP over the period 1998-2001.
* Significant at a 0.10 level.
** Siginificant at a 0.05 level
14
Table 4: Explaining economic growth from TEA medium export rate (1-25% of custom-
ers from abroad); N=36
TEA medium export Model 1 Model 2 Model 3
Constant
22.3 **
(6.3)
21.8 **
(4.3)
21.9 **
(5.5)
TEA_medium export .17 *
(1.7)
TEA_medium export rich .16
(1.3)
TEA_medium export poor .20
(1.1)
TEA_medium export
highly developed
.19
(1.5)
TEA_medium export tran-
sition
.56 *
(1.7)
TEA_medium export de-
veloping
.14
(0.8)
log (GNIC)
-2.4 **
(3.5)
-2.3 **
(3.0)
-2.4 **
(3.4)
GCI
.53
(0.6)
.51
(0.6)
.61
(0.7)
lagged gdp growth
.32 **
(2.5)
.33 **
(2.3)
.25
(1.3)
R
2
0.636 0.637 0.650
adjusted R
2
0.589 0.576 0.578
Absolute heteroskedasticity-consistent t-values are between brackets. Dependent variable is average annual
growth of GDP over the period 2002-2005. TEA is Total Entrepreneurial Activity rate (Global Entrepreneur-
ship Monitor); GCI is growth competitiveness index 2001 (Growth Competitiveness Report); GNIC is per
capita income of 2001; Lagged GDP growth is average annual growth of GDP over the period 1998-2001.
* Significant at a 0.10 level.
** Siginificant at a 0.05 level
15
Table 5: Explaining economic growth from TEA high export rate (26-100% of customers
from abroad); N=36
TEA high export Model 1 Model 2 Model 3
Constant
22.2 **
(5.7)
23.0 **
(4.3)
23.4 **
(5.6)
TEA_high export
.36
(1.4)
TEA_ high export rich
.42 *
(1.7)
TEA_ high export poor
.30
(0.7)
TEA_ high export
highly developed
.53 *
(1.8)
TEA_ high export
transition
1.80 **
(2.0)
TEA_ high export
developing
.26
(0.7)
log (GNIC)
-2.5 **
(3.4)
-2.5 **
(3.1)
-2.7 **
(3.7)
GCI
.65
(0.8)
.64
(0.7)
.88
(1.0)
lagged gdp growth
.36 **
(2.9)
.35 **
(2.5)
.24
(1.4)
R
2
0.637 0.637 0.666
adjusted R
2
0.590 0.577 0.597
Absolute heteroskedasticity-consistent t-values are between brackets. Dependent variable is average annual
growth of GDP over the period 2002-2005. TEA is Total Entrepreneurial Activity rate (Global Entrepreneur-
ship Monitor); GCI is growth competitiveness index 2001 (Growth Competitiveness Report); GNIC is per
capita income of 2001; Lagged GDP growth is average annual growth of GDP over the period 1998-2001.
* Significant at a 0.10 level.
** Siginificant at a 0.05 level
16
The Tables 2-5 reveal as hypothesized, that the presence of export-oriented entrepreneurs indeed
seems to be more important for achieving GDP growth than entrepreneurship in general. Comparing
the coefficients of the various TEA rates across the tables, we see that in each of the three model
variants the impact of TEA Export is higher compared to the impact of TEA in general. For instance,
the TEA rate has a coefficient of 0.047 (Table 2), while the coefficients of the TEA export rate, the
TEA medium export rate and the TEA high export rate are 0.13, 0.17 and 0.36, respectively. The
measures for TEA export also display higher t-values as compared to TEA in general.
2
As indicated before, an important element in our analysis is to distinguish between different groups
of countries. Table 2 confirms, in accordance with earlier findings of van Stel et al. (2005), that it is
important to distinguish between different groups of countries along their level of economic devel-
opment in investigating the relationship between entrepreneurship and economic growth. For exam-
ple, the table reveals that for rich countries the impact of entrepreneurial activity is significantly posi-
tive, whereas the impact for poor countries is effectively zero.
3
Looking at the results for our export
variables (Tables 3-5) a first finding is that having more entrepreneurs with export orientation seems
to be important in highly developed as well as in transition countries. The effect is strongest for tran-
sition economies. The magnitude and the statistical significance of the estimated coefficient as well
as the t-values indicate a stronger impact for transition economies compared to highly developed or
developing countries (see Tables 3-5). In transition countries the TEA high export rate shows the
strongest positive association with GDP Growth (Table 5), but the TEA medium export rate is also
significant positive related to GDP growth (Table 4).
For highly developed countries we find a significant positive association for high export involvement
of entrepreneurs with economic growth but no evidence of an impact for medium export involve-
ment. It seems that only a substantial amount of export activity by entrepreneurs contributes to
macro-economic growth. This could mean that exporting entrepreneurs have to pass a threshold level
of export activity in order to actually increase their human capital levels (e.g. by learning from the
experience gained abroad) so that they contribute to growth.
Finally, we find no evidence of an impact of new ventures export activity on GDP growth in devel-
oping countries. Van Stel et al. (2005) find no impact of entrepreneurship in general on economic
growth in developing economies. For these economies we also find no evidence that export-oriented
entrepreneurs, contribute to economic growth. It may be that human capital levels of entrepreneurs in
these countries are too low.
5. Conclusion & Discussion
This paper investigates whether the presence of export-oriented entrepreneurs is a more important
determinant of national economic growth than entrepreneurial activity in general. We also compare
the extent of influence of export-oriented entrepreneurship on GDP growth for three groups of coun-
2
Please note that ideally - in order to test whether export-oriented entrepreneurship makes a more important contribution
to economic growth than entrepreneurship in general - we would like to include the TEA and the TEA_export variables
in one and the same model. Indeed we did perform exercises including TEA and TEA_export in a single model. The re-
sults of these analyses revealed that the magnitude of the regression coefficients is similar to the coefficients reported in
Tables 2-5 for the separate models. However, because of multicollinearity t-values are lower in these single models. In
fact, the correlation coefficients between TEA on the one hand and the various TEA_export variables on the other hand
are above 0.6. Because of these multicollinearity problems, we have used separate models in our analysis. Nevertheless,
since the magnitude of the regression coefficients when using a single model is comparable to using separate models, we
feel that the results reported in Tables 2-5 are quite robust.
3
Van Stel et al. (2005) refer to a possible lack of larger companies in these poorer countries as a possible explanation for
the zero effect of entrepreneurial activity.
17
tries: highly developed economies, transition economies and developing economies. The distinction
between these three groups of countries relates to the shift from the managed to the entrepreneurial
economy (Audretsch and Thurik, 2001). In particular, the nature of entrepreneurship is likely to be
different for higher and lower developed countries hence the impact on economic growth may also
differ (van Stel et al., 2005).
For the groups of highly developed countries and transition countries we find that export-oriented en-
trepreneurship contributes more strongly to macro-economic growth than entrepreneurial activity in
general. The effect is particularly strong for transition economies. The results of our study do not
provide evidence of a relationship between new ventures’ export orientation and economic growth
for developing countries.
The findings of this study suggest that in developed countries high export orientation among new
ventures contributes to economic growth. In developed countries, technologies are in general more
widely available than in less developed countries and enterprises increasingly specialize in knowl-
edge-based activities. Therefore, new ventures’ foreign operations may be based on the presence of
specific technological knowledge, skills and valuable resources that are available within the firm
(e.g. Oviatt & McDougall, 1997). For these ventures international expansion is viable and sometimes
even necessary for survival, and they are likely to display high international involvement. Further-
more, these ventures are likely to develop specific skills (including innovative skills) through their
export activity, and may, therefore, have a particularly strong impact on economic growth. That we
find no impact on economic growth for entrepreneurs’ medium export orientation in developed
economies may indicate that exporting entrepreneurs that start with moderate levels of exporting
have to pass a threshold level of export activity, before they actually increase their human capital
levels and other resources (e.g. by learning from the experience gained abroad, by getting access to
knowledge and technology in foreign markets) so that they contribute to growth.
From a policy perspective our findings suggest that it may be beneficial for governments in devel-
oped economies to focus on stimulating high export ambitions among new ventures. Also, govern-
ments could introduce entrepreneurs’ export growth possibilities and ambitions as a selection crite-
rion in export promotion programs.
In our study we find a particular strong impact of export-oriented entrepreneurship on economic
growth for transition economies. Transition economies have a highly educated labor force, a rela-
tively low level of GDP, and a highly turbulent economy. One explanation for the relatively strong
positive impact we find may be that especially the high degree of environmental dynamism in these
countries positively affects the international orientation of new firms and the development of compe-
tences. Research suggests that environmental dynamism and the ensuing turbulence can stimulate or
even push new ventures to internationalize their sales and to intensify their export activities (Anders-
son et al., 2004; McDougall et al., 1994; Oviatt & McDougall, 1994; Zahra et al., 1997). Our results
suggest that in the kind of turbulent environment that is characteristic for transition economies ex-
porting entrepreneurs may have a particularly strong impact on competition, innovation and conse-
quently economic growth.
The results of our study reveal that export-oriented new ventures do not seem to make a significant
contribution to economic growth in developing countries. Because of the relatively high rate of ne-
cessity entrepreneurship and because of the level of economic development in these countries, new
entrepreneurs – also export-oriented entrepreneurs – will tend to have low levels of human capital
and will mainly be active in low-technology and low value added economic activities, such as agri-
culture. This may result in a low level of benefits and development of skills and competences at the
firm level (Zahra et al. 2000) and may consequently explain that these firms do not so much contrib-
ute to macro-economic growth. Our results underline the suggestions made by Wennekers et al.
(2005) that, because of their stage of development, low-income countries should not have a strong
18
focus on the promotion of new business creation and that it may be more beneficial for these coun-
tries to foster the exploitation of scale economies, e.g. through foreign direct investment.
Limitations of this study include the small sample size and the focus on export orientation only and
not on other modes of internationalization. Future research could benefit greatly from longitudinal
data and from including other modes of internationalization.
19
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