This paper provides a review of empirical studies into the impact of formal schooling on entrepreneurship selection and performance in industrial countries. We describe the main effects found in the literature, we explain the variance in results across almost a hundred studies, and we put the empirical results in the context of related economic theory and the much further developed literature in labor economics (studying the rate of return to education among wage employees). Five main conclusions result from this meta-analysis. First, the impact of education on selection into entrepreneurship is insignificant. Second, the effect of education on performance is positive and significant. Third, the return to a marginal year of schooling is 6.1% for an entrepreneur. Fourth, the effect of education on earnings is smaller for entrepreneurs than for employees in Europe, but larger in the USA. Fifth, the returns to schooling in entrepreneurship are higher in the USA than in Europe, higher for females than for males, and lower for non-whites or immigrants. In conclusion, we offer a number of suggestions to move the research frontier in this area of inquiry. The entrepreneurship literature on education can benefit from the technical sophistication used to estimate the returns to schooling for employees.
This meta-analytical review of empirical studies of the impact of schooling on entrepreneurship selection and performance in developing economies looks at variations in impact across specific characteristics of the studies. A marginal year of schooling in developing economies raises enterprise income by an average of 5.5 percent, which is close to the average return in industrial countries. The return varies, however, by gender, rural or urban residence, and the share of agriculture in the economy. Furthermore, more educated workers typically end up in wage employment and prefer nonfarm entrepreneurship to farming. The education effect that separates workers into self-employment and wage employment is stronger for women, possibly stronger in urban areas, and also stronger in the least developed economies, where agriculture is more dominant and literacy rates are lower. The theory of human capital posits that one of the main drivers of investment in schooling is the notion that schooling produces skills that raise worker productivity and income. Education, therefore, is thought to be beneficial for economic growth. The development literature thus includes numerous studies that attempt to quantify the rate of return to education. Psacharopoulos (1994) has brought together the evidence from 140 studies from around the world in a way that allows both international comparisons and trend analyses. However, almost without exception, returns to schooling refer to the returns employees generate from their years at school (Bennell 1996). By contrast, the literature on measurement of the rate of return to schooling in entrepreneurship or its most common empirical equivalent, self-employment, is actually still poorly defined, Justin van der Sluis is a Ph.D.
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