The more business owners, the merrier? The role of tertiary education

Mirjam van Praag*, André van Stel

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Policy in developed countries is often based on the assumption that higher business ownership rates induce economic value. Recent microeconomic empirical evidence may lead to a more nuanced view: Especially the top-performing business owners are responsible for the value creation of business owners. Other labor market participants would contribute more to economic value creation as an employee than as a business owner. The implied existence of an "optimal" business ownership rate would thus replace the dictum of "the more business owners, the merrier." We attempt to establish whether there is such an optimal level, i.e., a quadratic relation between the business ownership rate and economic output rather than a linear or higher-order relationship, while investigating the role of tertiary education. Two findings stand out. First, by estimating extended versions of traditional Cobb-Douglas production functions on a sample of 19 OECD countries over the period 1981-2006, we indeed find robust evidence of an optimal business ownership rate. Second, the relation between business ownership and macroeconomic productivity is steeper for countries with higher participation rates in tertiary education. Thus, the optimal business ownership rate tends to decrease with tertiary education levels. This is consistent with microeconomic theory and evidence showing that business owners with higher levels of human capital run larger firms.

Original languageEnglish
Pages (from-to)335-357
Number of pages23
JournalSmall Business Economics
Volume41
Issue number2
DOIs
Publication statusPublished - 1 Aug 2013
Externally publishedYes

Keywords

  • (Returns to) education
  • Business ownership
  • Cross-country comparison
  • Human capital
  • Production function

Fingerprint

Dive into the research topics of 'The more business owners, the merrier? The role of tertiary education'. Together they form a unique fingerprint.

Cite this