Description
With this particular detailed criteria about rural entrepreneurship in a time of recession1 maria.
Report 01-2013 POLICY BRIEF January 2013
INSTITUTE of PUBLIC POLICY
Harry S Truman School of Public Affairs
Rural Entrepreneurship in a Time of Recession
1
Maria Figueroa-Armijos, Brian Dabson, and Thomas G. Johnson
Introduction
Entrepreneurship is increasingly seen as a vital part of economic
development. National leaders, policymakers and researchers point to
entrepreneurship as a key strategy for short and long-term prosperity.
Indeed, for many rural communities, it is the only form of economic
development that has any real hope of creating jobs and wealth. Locally
grown entrepreneurship offers unique opportunities for value creation that is
resilient especially in times of economic stress. The recent Great Recession,
which officially came to an end in July 2009 (although its effects are still
being felt across Missouri and the nation), raised questions about what effect
it had on entrepreneurial activity and what this means for the future.
Much of the literature suggests that recessions do not discourage
entrepreneurs from starting new businesses. In fact, there is evidence that
some of the more successful public companies, such as Microsoft, Southwest
Airlines, Morgan Stanley, and Allstate were founded in a recession
(Kedrosky, 2008). The recent Great Recession lowered national annual job
growth rates to negative numbers between 2008 and 2010, but this also
pushed the reorganization of firms’ production processes and the
transformation of strategic plans. Indeed, productivity grows in difficult
1
This brief is based on Figueroa-Armijos, M., B. Dabson, and T.G. Johnson (2012), Rural Entrepreneurship in a Time of Recession. Entrepreneurship
Research Journal. Volume 2, Issue 1, January 2012.
Maria Figueroa-Armijos is
a doctoral candidate,
Truman School of Public
Affairs, University of
Missouri
Brian Dabson is Research
Professor and Director,
Institute of Public Policy at
the Truman School of
Public Affairs, University
of Missouri
Thomas G. Johnson is
Frank Miller Professor of
Agricultural and Applied
Economics and Professor of
Public Affairs, University
of Missouri
Talking Points
? State economic development incentives often target growth-oriented or
“opportunity-led” entrepreneurs and small businesses. But those who
are entrepreneurs by necessity can also be very important especially to
rural economies.
? The paper concludes that economic development policies should support
necessity entrepreneurs, particularly women, in rural areas.
Rural Entrepreneurship in a Time of Recession Report 01-2013
2
times as entrepreneurs create more competitive firms and jobs and higher value products. That is
not to say that entrepreneurship is easy in recessions as they bring higher levels of risk and
uncertainty (Egan & Tosanguan, 2009; Meece, 2009), and often higher costs and scarcer
resources.
There is a lot of research on what motivates individuals to become entrepreneurs, but a common
distinction introduced in 2001 by the Global Entrepreneurship Monitor (GEM) Consortium is
between two main types of entrepreneur (Reynolds et al, 2002). On the one hand are the
“opportunity” entrepreneurs who actively seek opportunities to create and grow
businesses. They are motivated by pull factors to start an enterprise. On the other hand are the
“necessity” entrepreneurs, who create businesses because there are few other available options to
earn a living. A global survey shows that two-thirds of entrepreneurs describe themselves as
opportunity-driven, and one-third, necessity driven (Hechavarria & Reynolds, 2009).
The literature on entrepreneurship and its impact in a rural context contains a number of
contradictions. Some stress the inherent locational disadvantages of rural locations that make
entrepreneurship particularly challenging, while others point to the fact that entrepreneurship is
the only route to creating diversified and sustainable rural economies, and that in some areas,
entrepreneurship is clearly contributing to economic vitality. Nevertheless, given the relationship
between prevailing economic conditions and entrepreneurial motivation, it might be expected
that entrepreneurs in rural areas may be more driven by necessity than by opportunity.
This study sought to tie these themes together and provide empirical evidence by asking the
following questions: Did the recession have any impact on motivations for entrepreneurship and
was there any particular impact on entrepreneurship in rural areas?
To answer these questions, the study combined several sources of data. US individual data was
gathered from The Global Entrepreneurship Monitor (GEM) Consortium, which currently
conducts an annual survey of entrepreneurial activity in 70 countries. United States data from
this survey for the years 2005-2010 provided information on opportunity and necessity
entrepreneurship both before the recession 2005-2007, and during 2008-2010. The Bureau of
Labor Statistics provided employment data to calculate county level annual job growth rates.
The cross tabulation of urban-rural and metro-nonmetro systems developed by Isserman (2005)
provided a means of classifying counties according to the degree of urban-rural integration and
separation so as to give insights into the effects of increasing rurality on entrepreneurial activity
and motivations. The resulting database contained 19,849 individual observations from 2,421
US counties, and was analyzed using rare events logistic regression.
The main findings of the study were as follows:
? In the years before the recession, individuals living in rural counties (both metro and
nonmetro) were more likely to engage in opportunity-driven entrepreneurship than people
living in more urban counties. This was contrary to expectations, and supports the more
optimistic view of the potential of entrepreneurship in rural areas.
Rural Entrepreneurship in a Time of Recession Report 01-2013
3
? Opportunity entrepreneurship was positively related to employment growth rates in all
types of county. During the recession, there was a marked shift towards necessity-driven
entrepreneurship. Having a lower income (less than $50,000) or part-time employment
increased the likelihood of engaging in necessity entrepreneurship.
? Individuals with at least a college education and those who were African-American were
more likely to engage in opportunity entrepreneurship during the recession, whereas
women, retirees, and individuals with incomes of less than $100,000 were less likely.
The study concludes that the recession marked a clear shift in entrepreneurial motivations.
Necessity entrepreneurship increased from approximately 16 percent of total entrepreneurial
activity in 2007 (Tozzi, 2010) to 28 percent in 2010 (Kelley, Bosma, & Amoros, 2011). This
shift was the result both of individuals in part-time employment and with lower household
incomes creating businesses out of need, and by those with full-time jobs being averse to taking
the risk of starting a new venture when the economy is weak and the future uncertain. Positive
employment growth rates before the recession motivated people in rural America to identify and
exploit entrepreneurial opportunities, but this was not the case during the recession. The clear
decline in opportunity entrepreneurship during the recession was consistent across different
levels of rurality.
What does this mean for Missouri?
Major economic transitions affecting rural areas in the last decades have forced community
leaders to look for innovative ways to rebuild their economic base and improve the quality of life
for their residents. This is no different for Missouri. Entrepreneurship has increasingly
outshined other economic development strategies given its tendency to promote growth from
within that optimizes local resources and create viable rural businesses. Entrepreneurship policy
has evolved to address obstacles faced by entrepreneurs such as financial and social capital,
nonetheless little is known about how local institutions and policies can rightfully support
businesses that are most likely to succeed in rural areas. Economic development policies need to
be revisited to address this need.
Recruitment strategies that rely on incentives are the favored way of pursuing economic
development at the state and local level, but they have little or no impact in the majority of rural
counties. The study shows that opportunity-driven entrepreneurship is an important feature of
rural economies when economic conditions are good, but necessity-based entrepreneurship in
leaner times is an effective way of providing employment and supplementing income. Although
there is a natural tendency to want to support opportunity entrepreneurship as the most likely
generator of sustained income and wealth, necessity entrepreneurship should not be ignored,
even less in times when other job options become scarce. In addition to the short-term remedial
benefits, history shows that many of the more successful companies were born out of necessity in
times of recession. Perhaps many of these companies started driven by necessity and
transformed later into opportunities for success? What if more of these companies were born
and supported in rural America and rural Missouri?
Rural Entrepreneurship in a Time of Recession Report 01-2013
4
Rural metro and nonmetro counties also seem to offer inherent unexploited opportunities for
women entrepreneurs. The study found that women entrepreneurship in these counties fared
relatively well during the recession. This suggests that the recession may have caused changes in
women’s entrepreneurial behavior that warrant further exploration and analysis.
The findings of this research challenge the frequent bias in policy against necessity
entrepreneurship in favor of opportunity and growth-oriented entrepreneurship. Considering the
intractable decline and out-migration that rural America has been experiencing for decades, rural
development strategies must be re-examined. To strengthen and invigorate rural communities,
economic development programs need to focus on improving the success rate and sustainable
growth of both types of entrepreneurs.
References
Egan, V. & Tosanguan, P. (2009). Coping strategies of entrepreneurs in economic recession: A
comparative analysis of Thais and European expatriates in Pattaya, Thailand. Journal of Asia
Entrepreneurship and Sustainability, V(3), 17-36
Hechavarria, D.M. & Reynolds, P.D. (2009). Cultural norms and business startups: The impact of
national values on opportunity and necessity entrepreneurs. International Entrepreneurship
Management Journal, 2009(5), 417-437
Isserman, A.M. (2005). In the national interest: Defining rural and urban correctly in research and public
policy. International Regional Science Review, 28(4), 465-499
Johnson, T.G. (2009). Challenges to Public Managers in Turbulent Economic Times. Paper Presented at
the Business Management Conference 2009, Durban, South Africa
Kedrosky, P.S. (2008). Entrepreneurs and recessions: Do downturns matter? Retrieved October 13,
2011, from:
http://www.kauffman.org/uploadedFiles/entrepreneurs_and_recessions_121508.pdf
Kelley, D., Bosma, N., & Amorós, J.E. (2011). Global Entrepreneurship Monitor: 2010 Global Report.
Babson College and Universidad del Desarrollo
Meece, M. (2009, August 22). On to Plan B: Starting a Business. Retrieved October 13, 2011, from:http://www.nytimes.com/2009/08/23/business/smallbusiness/23venture.html?pagewanted=2&_r=
1&ref=smallbusiness
Reynolds, P.D., Camp, S.M., Bygrave, W.D., Autio, E., & M. Hay. (2002). Global Entrepreneurship
Monitor 2001 Executive Report. Babson College, London Business School
Tozzi, J. (2010, March 9). Revisiting the face of necessity entrepreneurship. Retrieved October 13, 2011,
from:
http://www.businessweek.com/smallbiz/content/mar2010/sb2010039_995571.htm
doc_641816755.pdf
With this particular detailed criteria about rural entrepreneurship in a time of recession1 maria.
Report 01-2013 POLICY BRIEF January 2013
INSTITUTE of PUBLIC POLICY
Harry S Truman School of Public Affairs
Rural Entrepreneurship in a Time of Recession
1
Maria Figueroa-Armijos, Brian Dabson, and Thomas G. Johnson
Introduction
Entrepreneurship is increasingly seen as a vital part of economic
development. National leaders, policymakers and researchers point to
entrepreneurship as a key strategy for short and long-term prosperity.
Indeed, for many rural communities, it is the only form of economic
development that has any real hope of creating jobs and wealth. Locally
grown entrepreneurship offers unique opportunities for value creation that is
resilient especially in times of economic stress. The recent Great Recession,
which officially came to an end in July 2009 (although its effects are still
being felt across Missouri and the nation), raised questions about what effect
it had on entrepreneurial activity and what this means for the future.
Much of the literature suggests that recessions do not discourage
entrepreneurs from starting new businesses. In fact, there is evidence that
some of the more successful public companies, such as Microsoft, Southwest
Airlines, Morgan Stanley, and Allstate were founded in a recession
(Kedrosky, 2008). The recent Great Recession lowered national annual job
growth rates to negative numbers between 2008 and 2010, but this also
pushed the reorganization of firms’ production processes and the
transformation of strategic plans. Indeed, productivity grows in difficult
1
This brief is based on Figueroa-Armijos, M., B. Dabson, and T.G. Johnson (2012), Rural Entrepreneurship in a Time of Recession. Entrepreneurship
Research Journal. Volume 2, Issue 1, January 2012.
Maria Figueroa-Armijos is
a doctoral candidate,
Truman School of Public
Affairs, University of
Missouri
Brian Dabson is Research
Professor and Director,
Institute of Public Policy at
the Truman School of
Public Affairs, University
of Missouri
Thomas G. Johnson is
Frank Miller Professor of
Agricultural and Applied
Economics and Professor of
Public Affairs, University
of Missouri
Talking Points
? State economic development incentives often target growth-oriented or
“opportunity-led” entrepreneurs and small businesses. But those who
are entrepreneurs by necessity can also be very important especially to
rural economies.
? The paper concludes that economic development policies should support
necessity entrepreneurs, particularly women, in rural areas.
Rural Entrepreneurship in a Time of Recession Report 01-2013
2
times as entrepreneurs create more competitive firms and jobs and higher value products. That is
not to say that entrepreneurship is easy in recessions as they bring higher levels of risk and
uncertainty (Egan & Tosanguan, 2009; Meece, 2009), and often higher costs and scarcer
resources.
There is a lot of research on what motivates individuals to become entrepreneurs, but a common
distinction introduced in 2001 by the Global Entrepreneurship Monitor (GEM) Consortium is
between two main types of entrepreneur (Reynolds et al, 2002). On the one hand are the
“opportunity” entrepreneurs who actively seek opportunities to create and grow
businesses. They are motivated by pull factors to start an enterprise. On the other hand are the
“necessity” entrepreneurs, who create businesses because there are few other available options to
earn a living. A global survey shows that two-thirds of entrepreneurs describe themselves as
opportunity-driven, and one-third, necessity driven (Hechavarria & Reynolds, 2009).
The literature on entrepreneurship and its impact in a rural context contains a number of
contradictions. Some stress the inherent locational disadvantages of rural locations that make
entrepreneurship particularly challenging, while others point to the fact that entrepreneurship is
the only route to creating diversified and sustainable rural economies, and that in some areas,
entrepreneurship is clearly contributing to economic vitality. Nevertheless, given the relationship
between prevailing economic conditions and entrepreneurial motivation, it might be expected
that entrepreneurs in rural areas may be more driven by necessity than by opportunity.
This study sought to tie these themes together and provide empirical evidence by asking the
following questions: Did the recession have any impact on motivations for entrepreneurship and
was there any particular impact on entrepreneurship in rural areas?
To answer these questions, the study combined several sources of data. US individual data was
gathered from The Global Entrepreneurship Monitor (GEM) Consortium, which currently
conducts an annual survey of entrepreneurial activity in 70 countries. United States data from
this survey for the years 2005-2010 provided information on opportunity and necessity
entrepreneurship both before the recession 2005-2007, and during 2008-2010. The Bureau of
Labor Statistics provided employment data to calculate county level annual job growth rates.
The cross tabulation of urban-rural and metro-nonmetro systems developed by Isserman (2005)
provided a means of classifying counties according to the degree of urban-rural integration and
separation so as to give insights into the effects of increasing rurality on entrepreneurial activity
and motivations. The resulting database contained 19,849 individual observations from 2,421
US counties, and was analyzed using rare events logistic regression.
The main findings of the study were as follows:
? In the years before the recession, individuals living in rural counties (both metro and
nonmetro) were more likely to engage in opportunity-driven entrepreneurship than people
living in more urban counties. This was contrary to expectations, and supports the more
optimistic view of the potential of entrepreneurship in rural areas.
Rural Entrepreneurship in a Time of Recession Report 01-2013
3
? Opportunity entrepreneurship was positively related to employment growth rates in all
types of county. During the recession, there was a marked shift towards necessity-driven
entrepreneurship. Having a lower income (less than $50,000) or part-time employment
increased the likelihood of engaging in necessity entrepreneurship.
? Individuals with at least a college education and those who were African-American were
more likely to engage in opportunity entrepreneurship during the recession, whereas
women, retirees, and individuals with incomes of less than $100,000 were less likely.
The study concludes that the recession marked a clear shift in entrepreneurial motivations.
Necessity entrepreneurship increased from approximately 16 percent of total entrepreneurial
activity in 2007 (Tozzi, 2010) to 28 percent in 2010 (Kelley, Bosma, & Amoros, 2011). This
shift was the result both of individuals in part-time employment and with lower household
incomes creating businesses out of need, and by those with full-time jobs being averse to taking
the risk of starting a new venture when the economy is weak and the future uncertain. Positive
employment growth rates before the recession motivated people in rural America to identify and
exploit entrepreneurial opportunities, but this was not the case during the recession. The clear
decline in opportunity entrepreneurship during the recession was consistent across different
levels of rurality.
What does this mean for Missouri?
Major economic transitions affecting rural areas in the last decades have forced community
leaders to look for innovative ways to rebuild their economic base and improve the quality of life
for their residents. This is no different for Missouri. Entrepreneurship has increasingly
outshined other economic development strategies given its tendency to promote growth from
within that optimizes local resources and create viable rural businesses. Entrepreneurship policy
has evolved to address obstacles faced by entrepreneurs such as financial and social capital,
nonetheless little is known about how local institutions and policies can rightfully support
businesses that are most likely to succeed in rural areas. Economic development policies need to
be revisited to address this need.
Recruitment strategies that rely on incentives are the favored way of pursuing economic
development at the state and local level, but they have little or no impact in the majority of rural
counties. The study shows that opportunity-driven entrepreneurship is an important feature of
rural economies when economic conditions are good, but necessity-based entrepreneurship in
leaner times is an effective way of providing employment and supplementing income. Although
there is a natural tendency to want to support opportunity entrepreneurship as the most likely
generator of sustained income and wealth, necessity entrepreneurship should not be ignored,
even less in times when other job options become scarce. In addition to the short-term remedial
benefits, history shows that many of the more successful companies were born out of necessity in
times of recession. Perhaps many of these companies started driven by necessity and
transformed later into opportunities for success? What if more of these companies were born
and supported in rural America and rural Missouri?
Rural Entrepreneurship in a Time of Recession Report 01-2013
4
Rural metro and nonmetro counties also seem to offer inherent unexploited opportunities for
women entrepreneurs. The study found that women entrepreneurship in these counties fared
relatively well during the recession. This suggests that the recession may have caused changes in
women’s entrepreneurial behavior that warrant further exploration and analysis.
The findings of this research challenge the frequent bias in policy against necessity
entrepreneurship in favor of opportunity and growth-oriented entrepreneurship. Considering the
intractable decline and out-migration that rural America has been experiencing for decades, rural
development strategies must be re-examined. To strengthen and invigorate rural communities,
economic development programs need to focus on improving the success rate and sustainable
growth of both types of entrepreneurs.
References
Egan, V. & Tosanguan, P. (2009). Coping strategies of entrepreneurs in economic recession: A
comparative analysis of Thais and European expatriates in Pattaya, Thailand. Journal of Asia
Entrepreneurship and Sustainability, V(3), 17-36
Hechavarria, D.M. & Reynolds, P.D. (2009). Cultural norms and business startups: The impact of
national values on opportunity and necessity entrepreneurs. International Entrepreneurship
Management Journal, 2009(5), 417-437
Isserman, A.M. (2005). In the national interest: Defining rural and urban correctly in research and public
policy. International Regional Science Review, 28(4), 465-499
Johnson, T.G. (2009). Challenges to Public Managers in Turbulent Economic Times. Paper Presented at
the Business Management Conference 2009, Durban, South Africa
Kedrosky, P.S. (2008). Entrepreneurs and recessions: Do downturns matter? Retrieved October 13,
2011, from:
http://www.kauffman.org/uploadedFiles/entrepreneurs_and_recessions_121508.pdf
Kelley, D., Bosma, N., & Amorós, J.E. (2011). Global Entrepreneurship Monitor: 2010 Global Report.
Babson College and Universidad del Desarrollo
Meece, M. (2009, August 22). On to Plan B: Starting a Business. Retrieved October 13, 2011, from:http://www.nytimes.com/2009/08/23/business/smallbusiness/23venture.html?pagewanted=2&_r=
1&ref=smallbusiness
Reynolds, P.D., Camp, S.M., Bygrave, W.D., Autio, E., & M. Hay. (2002). Global Entrepreneurship
Monitor 2001 Executive Report. Babson College, London Business School
Tozzi, J. (2010, March 9). Revisiting the face of necessity entrepreneurship. Retrieved October 13, 2011,
from:
http://www.businessweek.com/smallbiz/content/mar2010/sb2010039_995571.htm
doc_641816755.pdf