Opportunity versus Necessity: Understanding the Heterogeneity of Female Micro-Entrepreneurs

Abstract

Entrepreneurs that voluntarily choose to start a business because they are able to identify a good business opportunity and act on it-opportunity entrepreneurs-might be different along various dimensions from those who are forced to become entrepreneurs because of lack of other alternatives-necessity entrepreneurs. To provide evidence on these differences, this article exploits a unique data set covering a wide array of characteristics, including cognitive skills, noncognitive skills, and managerial practices, for a large sample of female entrepreneurs in Mexico. Descriptive results show that on average opportunity entrepreneurs have better performance and higher skills than necessity entrepreneurs. A discriminant analysis reveals that discrimination is difficult to achieve based on these observables, which suggests the existence of unobservables driving both the decision to become an opportunity entrepreneur and performance. Thus, an instrumental variables estimation is conducted, using state economic growth in the year the business was set up as an instrument for opportunity, to confirm that opportunity entrepreneurs have higher performance and better management practices. JEL codes: J24, L26, O12 IN T R O D U C T I O NSupport programs for micro-businesses have become increasingly common in developing countries in recent years for at least two reasons: first, micro-enterprises employ a substantial fraction of individuals in these economies (about 47 percent in Mexico); and second, despite their prevalence, the majority of these microenterprises tend to stay small and have low productivity. However, the impact of such programs-many of which provide business grants, training or a combination of both-has been mixed at best. This raises the question about whether

Opportunity Versus Necessity Entrepreneurship: Two Components of Business Creation

“…For example, the 2010 wave of the German SOEP asks those who newly became self-employed in the survey year how much they agree with eight statements, including "I have always wanted to be my own boss", "I had an idea that I really wanted to implement", "I did not want to be unemployed anymore", and "I did not find employment (anymore)." Similar approaches to distinguish between opportunity and necessity entrepreneurs are used, for example, in a sample of entrepreneurs in Belgium (Giacomin et al 2011), the UK Quarterly Labour Force Survey (Dawson and Henley 2012), a sample of female entrepreneurs in Mexico (Calderon et al 2017), and an alternative survey for Germany Kritikos 2009, 2010).…”

Financial Inclusion

“…Buvinić and Furst-Nichols (2016) find that interventions through small cash loans or grants have varying outcomes on female empowerment depending on women's characteristics, such as income group, skills, and income source. Likewise, Calderon, Iacovone, and Juarez (2016) find heterogeneity across female entrepreneurship in Mexico. In contrast, Ghosh and Vinod (2017) and Swamy (2014) find female headed households have lower access to finance in India.…”

Paving the Way for Self-Employment: Does Society Matter?

“…Gender-based discussions are very rich in divergent sets of academic argumentation with respect to evaluating patterns of social mobility and corresponding decisions to keep or change jobs [57,58]. Self-employment may reflect the development of more or less successful strategies for coping with the conflicts arising from the difficult balance of employment and family life [59] and always dealing with a mix between pushing and pulling factors so that the many female owned micro enterprises are very heterogeneous [60].…”