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Uncertainty Avoidance and the Rate of Business Ownership Across 21 OECD Countries, 1976–2004

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Entrepreneurship and Culture

Abstract

Persistent differences in the level of business ownership across countries have attracted the attention of scientific as well as political debate. Cultural as well as economic influences are assumed to play a role. This paper deals with the influence of cultural attitudes towards uncertainty on the rate of business ownership across 21 OECD countries. First, the concepts of uncertainty and risk are elaborated, as well as their relevance for entrepreneurship. An occupational choice model is introduced to underpin our reasoning at the macro-level. Second, regression analysis using pooled macro data for 1976, 1990 and 2004 and controlling for several economic variables, yields evidence that uncertainty avoidance is positively correlated with the prevalence of business ownership. According to our model, a restrictive climate of large organizations in high uncertainty avoidance countries pushes individuals striving for autonomy towards self-employment. Regressions for these 3 years separately show that in 2004, this positive correlation is no longer found, indicating that a compensating pull of entrepreneurship in countries with low uncertainty avoidance may have gained momentum in recent years. Third, an interaction term between uncertainty avoidance and GDP per capita in the pooled panel regressions shows that the historical negative relationship between GDP per capita and the level of business ownership is substantially weaker for countries with lower uncertainty avoidance. This suggests that rising opportunity costs of self-employment play a less important role in this cultural environment, or are being compensated by increasing entrepreneurial opportunities.

Uncertainty avoidance and the rate of business ownership across 21 OECD countries, 1977–2004 (first published in: Journal of Evolutionary Economics, Vol. 17, No. 2, 2007)

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Notes

  1. 1.

    This approach is rooted in the work of Knight (1921) and starts from the functions of the provision of entrepreneurial ability and the bearing of risks. The second function underlines the importance of risk attitudes in the occupational choice process. See, for instance, Kihlstrom and Laffont (1979) and Parker (1997), where the degree of risk aversion and the differences in risk of becoming a business owner vis-à-vis an employee are given the central role in the determination of the occupational choice. See also Freytag and Thurik (2007).

  2. 2.

    See Blanchflower and Meyer (1994), Blanchflower and Oswald (1998), Douglas and Shepherd (2002), Evans and Leighton (1989, 1990), Grilo and Irigoyen (2006), Grilo and Thurik (2005, 2008) and Lin et al. (2000) for empirical work.

  3. 3.

    There is no generally accepted definition of entrepreneurship. See Wennekers and Thurik (1999) for an overview. In the present paper, we adopt a pragmatic approach by equating entrepreneurship, business ownership and self-employment, and an entrepreneur will simply be understood to be the owner/manager of either an unincorporated or an incorporated business. See also Thurik and Wennekers (2004) and Davidsson (2004).

  4. 4.

    In terms of our illustration above, the group of individuals with a high uncertainty aversion level, H, is larger than in a culture with low uncertainty avoidance.

  5. 5.

    Note again that OC*SE,i in (Eqn. 1) has to be positive in order for an individual to choose for self-employment, as the utility variables in the model are defined relative to the situation of wage-employment.

  6. 6.

    In a micro-economic model of occupational choice (de Wit 1993), equality of entrepreneurial income and wages determine the equilibrium number of self-employed. In this model, an exogenous wage increase lowers the (equilibrium) number of self-employed while an exogenous upward shift of profits raises the equilibrium.

  7. 7.

    In addition, nascent entrepreneurs were found to have more management experience.

  8. 8.

    Delmar and Davidsson (2000), EIM/EZ (2000), Gelderen van (1999, p. 21) and various annual Executive Reports published by the Global Entrepreneurship Monitor.

  9. 9.

    The clustering was carried out with the K-means algorithm. See Noorderhaven et al. (1999).

  10. 10.

    COMParative ENtrepreneurship Data for International Analysis. See van Stel (2005). In the current paper, data from COMPENDIA version 2004.2 are used.

  11. 11.

    No data on Hofstede’s indices are available for Iceland, whereas for Luxembourg there are estimates that we have used for clustering only. See Noorderhaven et al. (1999).

  12. 12.

    This study was first published in 1980, but the second edition, published in 2001, gives more information on stability and cross-validation of the data.

  13. 13.

    For the 19 countries in our dataset for which we have both Hofstede and GLOBE data on uncertainty avoidance, the correlations are: Hofstede UAI x GLOBE practices: −0.643; Hofstede UAI x GLOBE values: 0.607; GLOBE practices x GLOBE values: −0.869. All these correlations are significant at the 1% level.

  14. 14.

    Excluding the Gini coefficient and the long term interest rate, due to the smaller available number of observations of these variables.

  15. 15.

    This appears both from the significance level of the interaction term (p-value is 0.078) and from a loglikelihood test comparing the models in the first two columns of Table 6. The LR test statistic is 3.4 while the 10% critical value is 2.71.

  16. 16.

    Note that, in Table 6, the R2 of the continuous effect model is (slightly) higher compared to the discrete effect model while in Table 7, this is the other way around.

  17. 17.

    However, in 2004, Norway had a significant rise in the business ownership rate compared to 2002, possibly indicating a stabilization or even reversal of the downward trend. By contrast, while Canada and Switzerland show an increasing trend over the period 1972–1998, the business ownership rates of these countries are decreasing since 1998.

  18. 18.

    In addition, Luxemburg, that estimates show to be a high uncertainty avoidance country, also has a declining trend.

  19. 19.

    This includes individualism (Shane 1993), post-materialism (Uhlaner and Thurik 2007) and dissatisfaction (Noorderhaven et al. 2004).

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Acknowledgement

An early version of the present paper was read at the Workshop on Entrepreneurship and Culture, held at the Max Planck Institute of Economics in Jena on 7 February 2005. The authors would like to thank Geert Hofstede, Lorraine Uhlaner and two anonymous referees for helpful comments. The paper has been written in the framework of the research program SCALES which is carried out by EIM and is financed by the Dutch Ministry of Economic Affairs. The present version appeared in Journal of Evolutionary Economics 17(2), pp 133–160.

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    Sander Wennekers

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    Andreas Freytag

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    Roy Thurik

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Wennekers, S., Thurik, R., van Stel, A., Noorderhaven, N. (2010). Uncertainty Avoidance and the Rate of Business Ownership Across 21 OECD Countries, 1976–2004. In: Freytag, A., Thurik, R. (eds) Entrepreneurship and Culture. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-87910-7_13

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