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

Mirjam Praag and André van Stel

Small Business Economics, 2013, vol. 41, issue 2, 335-357

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. Copyright The Author(s) 2013

Keywords: Business ownership; Human capital; (Returns to) education; Cross-country comparison; Production function; E23; J24; L26; O40; O57 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (22)

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Working Paper: The More Business Owners the Merrier? The Role of Tertiary Education (2011)
Working Paper: The More Business Owners the Merrier? The Role of Tertiary Education (2011)
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DOI: 10.1007/s11187-012-9436-x

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