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Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation

Robert Fairlie () and Frank Fossen

No 6854, CESifo Working Paper Series from CESifo Group Munich

Abstract: A common finding in the entrepreneurship literature is that business creation increases in recessions. This counter-cyclical pattern is examined by separating business creation into two components: “opportunity” and “necessity” entrepreneurship. Although there is general agreement in the previous literature on the conceptual distinction between these two factors driving entrepreneurship, there are many challenges to creating a definition that is both objective and empirically feasible. We propose an operational definition of opportunity versus necessity entrepreneurship using readily available nationally representative data. We create a distinction between the two types of entrepreneurship based on the entrepreneur’s prior work status that is consistent with the standard theoretical economic model of entrepreneurship. Using this definition we document that “opportunity” entrepreneurship is pro-cyclical and “necessity” entrepreneurship is counter-cyclical. We also find that “opportunity” vs. “necessity” entrepreneurship is associated with the creation of more growth-oriented businesses. The operational distinction proposed here may be useful for future research in entrepreneurship.

Keywords: entrepreneurship; opportunity; necessity; self-employment; business cycle (search for similar items in EconPapers)
JEL-codes: L26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-ent, nep-ino and nep-sbm
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
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Working Paper: Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation (2018) Downloads
Working Paper: Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation (2018) Downloads
Working Paper: Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation (2018) Downloads
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