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Opportunity versus Necessity Entrepreneurship: Two Components of Business Creation

Robert Fairlie () and Frank Fossen

No 959, SOEPpapers on Multidisciplinary Panel Data Research from DIW Berlin, The German Socio-Economic Panel (SOEP)

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.

New Economics Papers: this item is included in nep-bec, nep-ent, nep-ino and nep-sbm
Date: 2018
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Citations: View citations in EconPapers (7) Track citations by RSS feed

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Related works:
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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