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Relationship between individualist–collectivist culture and entrepreneurial activity: evidence from Global Entrepreneurship Monitor data

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Abstract

This paper examines how one dimension of national culture (an individualist–collectivist orientation) is related to Total Entrepreneurial Activity, depending on the level of economic development, measured by GDP per capita. Researchers have traditionally associated individualism with high rates of firm creation, arguing that an orientation towards achievement and the pursuit of personal objectives (dominant aspects in individualist cultures) are determinants of entrepreneurial activity. The current analysis shows that a country’s culture correlates to entrepreneurship, but cannot uphold the idea that higher levels of individualism mean higher rates of entrepreneurship. Using data from the Global Entrepreneurship Monitor on 52 countries, the results show that a country’s entrepreneurship rate is negatively related to individualism when development is medium or low, and positively related to individualism when the level of development is high. Thus, individualism is not related to entrepreneurship in the same way in countries with differing levels of development.

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Notes

  1. An example is the Chinese culture, where individualism is a manifestation of selfishness, so anti-individualism is strongly rooted in the culture. But collectivism does not mean denying the well-being or interests of the individual. Instead, safeguarding the welfare of the group is seen as the best guarantee for the individual (Hofstede 2001; Hui and Triandis 1986).

  2. In order to interpret the size of these scores, recall that the I–C index (Hofstede 1980, 2001) can take values between 0 and 100, with values close to 100 meaning individualist cultures. The country with the highest score—i.e., the most individualist culture—is the US, with a score of 91.

  3. The mean TEA score in 2006 is 9.4%.

  4. For a detailed analysis of the importance and implications of identifying moderating variables, see Baron and Kenny (1986), and Sharma et al. (1981).

  5. Individualism–collectivism data are not yet available for the Dominican Republic, Latvia, or Uganda, so these countries cannot be included in the analysis.

  6. We exclude Taiwan from our analysis because comparable GDP per capita data are not available for the country in the World Bank’s database.

  7. It should be pointed out that the model can be specified in different ways (Allison 1977; Southwood 1978). One way involves carrying out a single regression, with TEA as the dependent variable and two independent variables in the equation: one with the INDCOL of the relatively rich countries and the other with the INDCOL of the relatively poor countries. An alternative way of specifying the model is to carry out two regressions, one for the relatively rich countries and the other for the relatively poor ones. Following Allison (1977), we opted to carry out a single regression using dummy variables, because dummy variables permit subsets of the data to have regression functions with different intercepts and different slopes. In this way, the results for the various datasets can be compared in a stringent way, and statistical inference becomes more efficient (Ghauri et al. 1995).

  8. The correlation between INDCOL and the interaction term INDCOL*GDPPC was 0.81, which indicates the existence of multicollinearity problems. Thus we transformed the variables following Venkatraman’s (1989) procedure. This resulted in a fall in the correlation to only 0.16, suggesting no problems of multicollinearity. Venkatraman (1989, pp. 426–427) points out that “[a]lthough statistical estimation problems are posed by multicollinearity, it is not problematic for establishing the existence of moderation effects. For interval-level measurements, a simple transformation of the scale of origin reduces the level of correlation between the cross-product term, X · Z, and the original variables (X, Z).[…] any equation [X 1,X 2,X 3 = X 1 · X 2] can be transformed into one \( \left[ {X_{1}^{\prime } ,X_{2}^{\prime } ,X_{3}^{\prime } = X_{1}^{\prime } \cdot X_{2}^{\prime } } \right] \) where \( X_{1}^{\prime } = \left[ {X_{1} + c} \right] \) and \( X_{2}^{\prime } = \left[ {X_{2} + k} \right] \), that is, the two equations express the same surface in the three dimensions [Y,X 1,X 2], except for the shift in the axes of X”. We transformed the variables as follows (i is country index): \( {\text{INDCOL}}_{i}^{\prime } \) = INDCOL i  − mean INDCOL, and \( {\text{GDPPC}}_{i}^{\prime } \) = GDPPC i  − mean GDPPC.

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  1. Rey Juan Carlos University, Madrid, Spain

    María-José Pinillos & Luisa Reyes

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  1. María-José Pinillos
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Correspondence to María-José Pinillos.

Appendix I

Appendix I

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Table 3 Clusters of countries and mean TEA rate
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Pinillos, MJ., Reyes, L. Relationship between individualist–collectivist culture and entrepreneurial activity: evidence from Global Entrepreneurship Monitor data. Small Bus Econ 37, 23–37 (2011). https://doi.org/10.1007/s11187-009-9230-6

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