Does public sector crowd out entrepreneurship? Evidence from the EU regions

Abstract

Purpose The decision to engage in entrepreneurial activities is grounded in personal characteristics (motivation) and external environmental factors. One of the main external factors might be the structure of the regional economic activity. Does a high share of the public sector affect positively regional entrepreneurship or vice versa? Does the diversity in regional economic activity is conducive for entrepreneurial development or the regional comparative advantage as expressed by spatial economies of scale offering more entrepreneurial opportunities? Even though economic analysis has extensively examined the impact of the public sector size on the overall national economic activity (the crowding out effect), this impact has not been into scrutiny at regional level on microeconomic issues, such as the decision to engage in entrepreneurial activities. The authors further investigate the relation between diversity and entrepreneurship at regional level. The paper aims to discuss these issues. Design/methodology/approach This paper uses data for 264 NUTS II EU regions. The time span of the data set is 1999-2008. The paper applies panel data analysis to explain the cross-time cross-section variation of the dependent variable: the self-employment share in total employment at regional level. In order to measure the existence of crowding out from public sector to regional entrepreneurship, the authors use the share of regional public sector gross value added over total regional gross value added. The diversity of the regional economic activity is measured by the Herfindahl-Hirschman Concentration Index across sectors. Findings The findings of the paper show that there is a negative correlation between public sector share and regional entrepreneurship. Hence, as at national level, the increase in the role of the public sector in the regional economic system crowds out regional entrepreneurship. The second finding indicates that the impact of the diversity of the regional economic activity on regional entrepreneurship is inconclusive. Originality/value The originality of this paper is due to the fact that the role of the public sector on regional economic phenomena, such as entrepreneurship, is examined for the first time. Also, the investigation of the relationship between diversity (vs localization economies) and entrepreneurship is performed using data for the full sample of regions of the European Union. The findings of the paper have significant policy implications since they provide useful inputs for the design of the regional development policy. The reduction of the public sector at regional level may contribute in entrepreneurial development and finally in regional economic growth and prosperity. Besides, the regional industrial policy should focus on the exploitation of the spatially constraint economies of scope in the framework of the Triple Helix model.

E-Government and Entrepreneurship: Online Government Services and the Ease of Starting Business

“…Under public choice theory, less (government regulation) is more, as demonstrated by Aidis et al (2012) who showed that entrepreneurial entry is inversely related to the size of government, and Branstetter et al (2014) who studied how regulatory reform in Portugal stimulated entrepreneurial entry. Over and above the effect of regulation, a case can also be made that the sheer size of the public sector may crowd out the development of a vibrant entrepreneurial ecosystem (Zikou et al 2018).…”

Public entrepreneurship literature from 2010 to 2019: A systematic review

“…The General theory of business modelling analyses risks identification and the ability of organizations to invest in those risk and rape future benefits (Marie, 2016;Xu & Carey, 2015). PE research themes A comprehensive analysis of the 61 PE articles reviewed for this study revealed that they could be classified into three distinct themes: 1) Efficiency in PE (e.g., Xu & Carey, 2015;Klein et al, 2013;Lee et al, 2012), 2) Employee involvement in PE (e.g., Marie, 2016;Rivera & Landahl, 2019;Zampetakis & Moustakis, 2010), and 3) Determinants of PE (e.g., de Andrade et al, 2016;Gofen & Blomqvist, 2014;Zikou et al, 2017). Figure 6 reveals the number and percentage of the 61 PE articles that make up each category.…”

“…The last theme amongst the PE themes is PE determinants (18%), whereby articles sought to understand the factors that determine whether or not a public sector organization adopted an entrepreneurial mindset. These factors were categorized into internal and external factors (Zikou et al, 2017). The internal factors included personal motivation and knowledge, while external factors included the level of economic activities and organization strategy and structure (e.g.…”

“…The internal factors included personal motivation and knowledge, while external factors included the level of economic activities and organization strategy and structure (e.g. de Andrade et al, 2016;Gofen & Blomqvist, 2014;Smith, 2012;Zikou et al, 2017). Centralization and decentralization of government activates are also said to determine PE in localities (e.g.…”

Innovation and entrepreneurship in education, irreconcilable differences? A first approach through Spanish expert judgment

“…Similarly, Pizzolato, as cited in Pérez (2014), affirmed that entrepreneurship can be understood as a productive activity that generates employment. Zikou et al (2018), however, highlighted the role of entrepreneurship as a driver for innovation, which may even be synonymous with innovation, creativity and new organisations. They argued that it is related to personal characteristics (skills and abilities), motivation and external environment aspects.…”