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Explicitly Implicit: How Institutional Differences Influence Entrepreneurship

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Geography, Institutions and Regional Economic Performance

Part of the book series: Advances in Spatial Science ((ADVSPATIAL))

Abstract

Implicit institutions are shaped by societal norms and values. We expect them to impact an individual’s decision to become an entrepreneur. Exploiting a natural experiment in Germany’s recent history, we compare individuals born and raised in the former socialist East Germany to their West German counterparts. Our results show that the socialist regime shaped attitudes which are negatively associated with entrepreneurship. An analysis of East Germans who moved to West Germany after the fall of the Berlin Wall confirms that the socialist legacy not only runs through the channel of a less developed economic environment but indeed through implicit institutions.

JEL Code: A13, L26, P30

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Notes

  1. 1.

    For a more general discussion of cultural impacts on regional economic performance see Elena Bellini, Ottaviano, Pinelli and Prarolo (chapter “Cultural Diversity and Economic Performance: Evidence from European Regions” of this volume) who identify a positive effect of cultural diversity on productivity in West European regions.

  2. 2.

    For an overview, see Parker (2009).

  3. 3.

    Anyhow, networking does not only have an individual but also a regional component. Regional networks may support entrepreneurs as long as entrepreneurs manage to build up and maintain trust (Sanders and Nee 1996); i.e. the availability of social capital in a region affects entrepreneurship as well (Bauernschuster et al. 2010). See also Crescenzi et al. (chapter “The ‘Bright’ Side of Social Capital: How ‘Bridging’ Makes Italian Provinces More Innovative” in this volume); who assess the impact of social capital on regional innovative output for the case of Italy.

  4. 4.

    For a detailed analysis of the interactions between personal characteristics, institutional environment and space with respect to academic entrepreneurship see Abreu and Grinevich (chapter “Academic Entrepreneurship and the Geography of University Knowledge Flows in the UK”in this volume).

  5. 5.

    Eventually, this lack of individual incentives also contributed to the low level of productivity in Eastern Bloc countries (VanArk 1996), particularly to the lack of productivity of the GDR as compared to the FRG (VanArk 1995).

  6. 6.

    For a detailed description of this data, see Fritsch and Brixy (2004). A detailed description of how the number of start-ups is computed is provided by the authors upon request.

  7. 7.

    For a comparison of the labor market approach and the ecological approach, see Audretsch and Fritsch (1994).

  8. 8.

    The ALLBUS program was financially supported by the German Research Foundation (DFG) from 1980 to 1986 and in 1991. Further surveys were financed on a national and federal state (Laender) level via the GESIS network (Gesellschaft Sozialwissenschaftlicher Infrastruktureinrichtungen).

  9. 9.

    Terwey et al. (2007) provide detailed information on the ALLBUS surveys in general and present all variables available in the cumulated dataset from 1980 until 2006.

  10. 10.

    See for migration patterns of East Germans Burda (1993), Burda et al. (1998), and Hunt (2006).

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Author information

Authors and Affiliations

  1. Ifo Institute and CESifo, Poschingerstr. 5, Munich, 81679, Germany

    Stefan Bauernschuster

  2. Ifo Institute, University of Munich (LMU) and CESifo, Poschingerstr. 5, Munich, 81679, Germany

    Oliver Falck

  3. Max Planck Institute of Economics, Entrepreneurship, Growth, and Public Policy Group, Kahlaische Str. 10, Jena, 07745, Germany

    Robert Gold

  4. Division of Economics, University of Stirling, CESifo, IZA and SERC, Stirling, FK9 4LA, UK

    Stephan Heblich

Authors
  1. Stefan Bauernschuster
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  2. Oliver Falck
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  3. Robert Gold
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  4. Stephan Heblich
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Corresponding author

Correspondence to Stefan Bauernschuster .

Editor information

Editors and Affiliations

  1. , Dept. of Geography and Environment, London School of Economics, Houghton Street, London, WC2A 2AE, United Kingdom

    Riccardo Crescenzi

  2. , Institutional Analysis and, Università Bocconi, via Rontgen 1, Milano, 20121, Italy

    Marco Percoco

Appendices

Appendix Appendix 1: Descriptive Statistics for Area Under Investigation

Number of regions (NUTS3)

East 47

West 50

 

Min

Mean

Max

Min

Mean

Max

Total number of firms

1,170

3,047

7,337

1,480

3,009

6,390

Number of firms in manufacturing

91

322

977

115

363

687

Total number of employees

16,424

18,969

115,063

11,681

36,704

109,056

Number of employees in manufacturing

2,119

6,448

17,138

2,677

12,376

61,546

Total number of startups

103

328.67

1,272

105

275.49

745

Number of start ups in manufacturing

4

23.04

79

3

18.86

53

Total number of firm shutdowns

0

279.06

1,160

0

197.56

739

Number of shutdowns in manufacturing

0

23.33

97

0

19

57

Inhabitants

44,076

108,160

237,833

49,462

124,085.50

266,070

Population density

40

251.57

1,170

42

203.72

1,534

GDP

834,195

1,904,423

5,811,596

858,014

2,814,694

9,005,517

GDP per capita

12.06

17.51

30.14

12.78

23.05

73.89

Appendix 2: Persisting Differences Between East and West Germany (Districts’ Averages)

  

1999

2000

2001

2002

2003

2004

GDP

West

2,713,335

2,755,099

2,824,650

2,837,641

2,851,413

2,906,028

East

1,810,424

1,845,522

1,893,191

1,926,538

1,947,363

2,003,500

Diff.

902,911***

909,576***

931,459***

911,103***

904,051***

902,528***

GDP per capita

West

22.17

22.52

23.13

23.25

23.34

23.89

East

16.28

16.70

17.32

17.84

18.17

18.76

Diff.

5.88***

5.82***

5.81***

5.42***

5.17***

5.13***

Firms in manufacturing

West

377.36

374.62

366.4

358.8

353.24

345.18

East

346.81

335.15

324.91

315.26

307.00

300.53

Diff.

30.55

39.47

41.49*

43.54*

46.24*

44.6*

Employees in manufacturing

West

12,649

12,675

12,673

12,350

12,081

11,829

East

6,324

6,488

6,549

6,503

6,419

6,404

Diff.

6,324***

6,186***

6,124***

5,847***

5,662***

5,425***

Shutdowns in manufacturing

West

28.24

28.16

29.38

28.22

-

-

East

38.38

34.45

35.89

31.26

-

-

Diff.

10.14***

6.29**

6.51**

3.04

-

-

Inhabitants

West

123,999

124,078

124,149

124,230

124,146

123,911

East

110,009

109,375

108,579

107,783

106,996

106,218

Difference

13,990*

14,704*

15,570**

16,447**

17,150**

17,692**

  1. Notes: * denotes 10 % level of significance, ** denotes 5 % level of significance, *** denotes 1 % level of significance

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Bauernschuster, S., Falck, O., Gold, R., Heblich, S. (2013). Explicitly Implicit: How Institutional Differences Influence Entrepreneurship. In: Crescenzi, R., Percoco, M. (eds) Geography, Institutions and Regional Economic Performance. Advances in Spatial Science. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-33395-8_9

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