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Defining and measuring entrepreneurship for regional research: A new approach

ProQuest Dissertations and Theses, 2009
Dissertation
Author: Sarah A Low
Abstract:
In this dissertation, I develop a definition and regional measure of entrepreneurship that will aid entrepreneurship research and economic development policy. My new indicators represent an improvement over current measures of entrepreneurship. The chief contribution of these new indicators is that they incorporate innovation, which others ignore. These indicators represent a significant contribution to the literature and can stimulate discussion among entrepreneurship scholars about how we conceptualize and measure entrepreneurship. Chapter 1 motivates the need for a different regional measure of entrepreneurship. Chapter 2 posits a three-part definition of entrepreneurship, with roots in the work of early entrepreneurship scholars including Schumpeter, Knight, and Say. Chapter 3 assesses widely used measures of entrepreneurship and their relevance to the proposed definition. The lack of a clear definition and measure of entrepreneurship hinders the research informing entrepreneurial support policies (Bruyat and Pierre-Andre, 2000). Chapter 4 develops new indicators of entrepreneurship that capture all three components of the proposed definition. The identification of innovative industries, industries with high level of skill, technology, patents, churn, and employment growth, using detailed NAICS (North American Industrial Classification System) industry data, represents an important contribution of this dissertation. By applying the innovative industries to single-unit employer establishment birth and self employment data, I create indicators that are available annually for all counties. Using the reduced-form model of entrepreneurship developed by Goetz and Rupasingha (2008), Chapter 5 assesses the determinants of the new entrepreneurship indicator. In Chapter 6, I use a growth model recently developed at the U.S. Department of Agriculture's Economic Research Service (McGranahan, Wojan, and Lambert. 2009) to examine the relationship between my new indicator of entrepreneurship and economic growth. I find a positive and robust relationship between growth and my new indicator of entrepreneurship. Chapter 7 reviews the results and addresses policy-implications, problems, and future work.

TABLE OF CONTENTS CHAPTER 1: INTRODUCTION 1 CHAPTER 2: DEFINING ENTREPRENEURSHIP 4 CHAPTER 3: CURRENT MEASURES OF ENTREPRENEURSHIP 14 CHAPTER 4: THE ENTREPRENEURIAL PNDUSTRIES INDICATOR 28 CHAPTER 5: ENTREPRENEURIAL PNDUSTRIES: ENTREPRENEURSHIP MODEL 65 CHAPTER 6: ENTREPRENEURIAL INDUSTRIES: REGIONAL GROWTH MODEL 84 CHAPTER 7: CONCLUSION 95 REFERENCES 99 APPENDIX A: DATA FOR IDENTIFYING ENTREPRENEURIAL PNDUSTRIES 109 APPENDIX B: SPATIAL ECONOMETRICS 113 APPENDIX C: CHAPTER 5 RESULTS 117 APPENDrX D: CHAPTER 6 RESULTS 121 CURRICULUM VITAE 127 VI

CHAPTER 1: INTRODUCTION Policies and programs to foster entrepreneurship, particularly at the state and local level, are becoming increasingly common. The lack of a theoretically sound definition and appropriate measure of entrepreneurship, however, hinders effective policymaking and research. Existing research uses a multitude of entrepreneurship indicators, each identifying one or more attributes of entrepreneurship, each partially dictated by the availability of data for the region and time period of interest. Most important, the commonly used measures of entrepreneurship ignore innovation—a long established defining attribute of entrepreneurship for economic development. Researchers must development more reliable measures of entrepreneurship in order to strengthen economic development research and create more effective economic development strategies. This dissertation presents a conceptually clear definition of entrepreneurship and indicators of this definition for use in economic development research and policymaking. A key aspect of these indicators is that they capture innovation better than existing measures of entrepreneurship. This dissertation contributes a method for identifying innovative industries and the Entrepreneurial Industries entrepreneurship indicators, which have both the breadth and depth to be useful for regional research and economic development purposes. My new indicators represent an improvement over current measures of entrepreneurship and have the potential to improve research and policy by improving the quality of empirical entrepreneurship research. The indicators are interesting because they are the first known attempt to create an indicator that captures multiple facets of entrepreneurship and are readily available at the county level. Although my indicators are imperfect, this research represents a significant contribution to the literature and I hope it stimulates discussion among entrepreneurship scholars about how we measure and conceptualize entrepreneurship. 1

In Chapter 2,1 discuss functional definitions of entrepreneurship, paying particular attention to how definitions of entrepreneurship relate to economic development. I identify three broad attributes in existing definitions of entrepreneurship and posit a definition for this dissertation that includes the three attributes. I define entrepreneurship as 1) owning or operating a firm to capture economic rents, while 2) bearing the risk and uncertainty of the firm, and 3) being innovative or continually reallocating resources. In Chapter 3,1 compare existing measures of entrepreneurship and discuss how they relate to the definition this dissertation uses. No existing measure meets the definition of entrepreneurship established in Chapter 2, with innovation being the most overlooked attribute of entrepreneurship. In Chapter 4,1 respond to the call for the development of regional entrepreneurship measures that capture the innovative nature of entrepreneurship better than existing measures. I identify innovative industries using occupation skill and technology, and industry patenting, churn, and employment growth. I use data on single- unit employer establishment births and self employment to count establishments in innovative industries for each county. The establishment birth data are available at the five-digit NAICS (North American Industrial Classification System) industry level for U.S. counties, annually. These data from the Dynamic Data, U.S. Statistics of Business and were obtained by USDA-ERS through a special agreement with the Census Bureau. The self employment data are available annually for U.S. counties from the Census Bureau's Nonemployer Statistics series. These data are available at the six-digit NAICS industry level, but because the data are publicly available, they are subject to suppression. In Chapter 5,1 examine determinants of entrepreneurship and the determinants of my new indicator using an empirical model of county-level entrepreneurship developed by Goetz and Rupasingha (2008). I find the determinants of the new indicator are similar to parent measures, but amenities, urbanization, and financial collateral appear to drive Entrepreneurial Industries. In Chapter 6,1 test the new entrepreneurship indicators in a growth model recently developed at the USDA Economic Research Service. I test the relationship between the new indicators and employment, population, and job growth. I find a robust, 2

positive relationship between Entrepreneurial Industries and growth, which may be stronger than the relationship other measures have with growth, likely because the Entrepreneurial Industries indicator includes the most innovative establishments. Chapter 7 offers conclusions and discussion on the virtues and vices of the Entrepreneurial Industries indicator. I also discuss the dissertation's other research contributions and conclude with what I learned during the dissertation process. 3

CHAPTER 2: DEFINING ENTREPRENEURSHIP "risk-takers, the doers, the makers of things" —President Obama on entrepreneurs, Inauguration Day, 2009 The entrepreneur has played an important role in the academic literature for 250 years. While there remains a broad consensus about the central role of entrepreneur ship in the economy, theoretical and conceptual models of entrepreneurship vary widely. Theoretical models of entrepreneurship are weak or non-existent, and the term entrepreneur is still vaguely defined, even though entrepreneurship scholars seem obsessed with defining the word entrepreneur (Bull and Willard, 1993). Scholars have long disagreed about the definition of entrepreneurship (Cole, 1942). Defining entrepreneurship and developing a theoretical model present two related problems- defining entrepreneurship is hindered by difficulties in conceptualizing and quantifying theoretical models of the entrepreneurial process (Iversen et al., 2008), while the lack of a consensus definition hinders theoretical model development (Bull and Willard, 1993). No theory of entrepreneurship has been developed that explains or predicts when an entrepreneur, by any definition, might appear or engage in entrepreneurship (Bull and Willard, 1993). Many different functional definitions or theories of entrepreneurship have been proffered, likely because entrepreneurship is a dynamic and complex phenomenon with multiple purposes (Bruyat and Pierre-Andre, 2000). This complexity makes it impossible to capture the totality of entrepreneurship without using a multi-component definition (Iversen et al., 2008). Despite the lack of a consensus definition of entrepreneurship (Iversen et al., 2008; Bull and Willard, 1993; Bruyat and Pierre-Andre, 2000), and confusion in measuring entrepreneurship (Gartner and Shane, 1995; Luger and Koo, 2005; Hoffmann et al., 2006), research on entrepreneurship for economic development is booming. Researchers have found a strong correlation between entrepreneurship and long-term regional employment growth (Acs and Armington, 2003). This relationship has important policy implications as entrepreneurship is often considered a more sustainable economic 4

development strategy than alternatives such as industrial recruitment. Nevertheless, the lack of a theoretically sound definition of entrepreneurship precludes a full understanding of the regional development opportunities associated with entrepreneurship (Casson, 2003). Good science must begin with good definitions (Bygrave and Hofer, 1991), and in this regard, current entrepreneurship research fails due to definitional ambiguity. We need a clear definition of entrepreneurship to advance theoretical and empirical research that can better inform economic development professionals and policymakers about how entrepreneurship can drive economic development. This chapter presents a conceptually clear working definition of entrepreneurship for economic development. This definition is based on a review of others' functional definitions of entrepreneurship. I use this definition as the basis for developing new measures of entrepreneurship in Chapter 4. 2.1. THREE ATTRIBUTES OF ENTREPRENEURSHIP FROM THE FUNCTIONAL ENTREPRENEURSHIP LITERATURE As the theory behind, and definition of, economic entrepreneurship develops, the functions of entrepreneurs receives more attention (Casson, 2003). Literature is moving away from the supply-side (trait-based) approach to defining entrepreneurship, e.g., Low and Macmillan (1988), to a more demand-side approach. The demand-side approach defines entrepreneurship by the entrepreneur's function, or what entrepreneurs do, rather than who entrepreneurs are, and this proves more useful for prescriptive policy research (Gartner, 1990; Rocha and Birkinshaw, 2007). This section discusses several major functional definitions of entrepreneurship used in the economic and economic growth literature over the past 250 years. Particular attention is paid to the relationship between entrepreneurship and economic development. Many definitions of entrepreneurship exist, but the literature points to three broad yet distinct attributes of the entrepreneur's function: 1. Ownership or operation of a firm, 2. Risk and uncertainty bearing, and 3. Innovation or the reallocation of resources. This section is organized around these three attributes of entrepreneurship. 5

2.1.1 Ownership or Operation of a Firm Ownership or operation of a firm is an important attribute of entrepreneurship. It is not sufficient to define entrepreneurship, but I posit it is necessary to define entrepreneurship. The exploitation of entrepreneurial ideas must take place within a firm, as there is no market for entrepreneurship (Casson, 2003; Ross and Westgren, 2006). As a result, owning or operating a firm—particularly a small firm—is one of the most widely used definitions of entrepreneurship (Georgellis and Wall, 2000; Parker, 1996; Glaeser, 2007; Goetz and Rupasingha, 2008; Shrestha et al., 2007). The owner or operator of a firm is the firm's leader. The firm leader makes daily business decisions about innovation, risk preferences, and coordinates firm activities (Cantillon, [1755] 1964; Casson, 2003). As will be shown, numerous theorists use ownership of a firm as one of the key elements in defining entrepreneurship. Richard Cantillon (1680-1734), an Irish economist, was the first economist to define entrepreneurs by their function (Rocha and Birkinshaw, 2007). Cantillon's entrepreneur is a firm operator, who has an ownership stake but also bears risk. Cantillon's entrepreneur differs from a capitalist because he/she directs production and his/her function is to equate supply and demand in the market. By contrast, a capitalist simply provides capital and does not operate the firm (Cantillon, [1755] 1964). Jean-Baptiste Say (1767-1832) also distinguishes the entrepreneur from capitalists and laborers, but Say defines the entrepreneur as a manager. Say's entrepreneurs are a factor of production whose job it is to assess firm opportunities and select the most favorable (Say, [1803] 2001). Say affirms that the entrepreneur receives a wage premium due to the scarcity of his/her skills, akin to Coase's Theory of the Firm (1937). Say does not emphasize the risk bearing nature of entrepreneurship like Cantillon does, but instead focuses on the managerial, or operator functions. These functions include combining factors of production in the firm in the most efficient manner (Iversen et al., 2008). T.W. Schultz (1902-1998) was an agricultural economist in the Chicago school, and his main contribution was the human capital theory of entrepreneurship. Schultz defines entrepreneurship as the ability to reallocate efficiently resources to deal with disequilibria in the market and maximize profit. These are decisions that an owner or 6

operator must make (Klein and Cook, 2006; Iversen et al., 2008). Schultz posits that economic growth comes from individuals responding to disequilibria, and the higher their human capital, the more optimal are their responses to changing economic conditions. Schultz extends the entrepreneurship theory literature by concluding that economic growth can be advanced with entrepreneurs who have high levels of human capital. Like Cantillon, Say, and Schultz, Mark Casson (1945-) defines entrepreneurs by their operator function—assessing markets, making decisions, negotiating, and coordinating firm activities. Casson (2003) differentiates the entrepreneur and manager, however, by positing that the entrepreneur establishes a firm and bears the start-up costs necessary to exploit his entrepreneurial behavior and pursue profit. Casson's entrepreneurs specialize in decision-making, but Casson also makes clear that not all decision makers are entrepreneurs (Iversen et al., 2008). 2.1.2 Risk or Uncertainty Bearing Risk and uncertainty bearing are important attributes of entrepreneurship because they distinguish entrepreneurs from wage and salary workers (Knight, 1942; Casson, 2003). Entrepreneurs may be richly rewarded with rents due to innovation and early adoption, but, to be rewarded, they must bear the associated risk and uncertainty. Moreover, risk bearers retain only net profits, after outstanding obligations are paid. Von Thiinen, Knight, Cantillon, and Casson all emphasize that the entrepreneur bears the cost of establishing a firm, receives uncertain compensation, and has a low level of risk or uncertainty aversion. Johann Heinrich von Thiinen (1783-1850) worked on marginal productivity and defines economic rents as those that are earned at the margin of production and are created by spatial variation (von Thiinen, [1826] 1960). Like Cantillon, von Thiinen's entrepreneur bears risk and uncertainty, receiving only the residual profits after he/she makes all contractual payments, but von Thiinen was the first to distinguish between risks that can be insured and uncertainty that cannot (Cantillon, [1755] 1964). Von Thiinen and Cantillon's work served as a foundation for the work of Frank Knight (1885-1972), who fleshes out the unpredictable entrepreneurial income component, distinguishing risk from uncertainty in his famous dissertation, "Risk, 7

Uncertainty, and Profit" (Knight, 1942). The association of entrepreneurship with uncertainty provided the early foundation for the American or Chicago School of economic theory. Knight defines the entrepreneur as a firm owner who purchases inputs (labor, raw materials) for a fixed price and makes a product or service, and due to changing preferences, will receive an uncertain price in an uncertain economy. Knight's entrepreneur bears the cost of innovation. Since unpredictable contingencies occur, innovation must be associated with risk-taking and judgment (better conception of the unknowable future market). Knight (1942) argues that the entrepreneur assumes three functions or tasks: 1. Initiate innovations or useful changes, 2. Adapt to changes in the economic environment, and 3. Assume the consequences of uncertainty related to the innovation. Knight states that the entrepreneur functions as an economic pioneer by initiating innovations and bearing the costs associated with the innovation's risk and uncertainty. For bearing firm risk and uncertainty, the entrepreneur is entitled to residual income after all contractual payments have been made (Casson, 2003). The innovator is generally more dynamic than the manager who performs routine activities. Knight, does however admit that managers of large firms must make predictions—much like entrepreneurs— but the manager is not the sole recipient of net profits. Knight defines risk as randomness with a known ex-ante probability distribution, while uncertainty is randomness with an undefined probability distribution (Klein and Cook, 2006). Uncertainty is one of the problems associated with developing a theoretical model of entrepreneurship, because of the unknown probability distribution. Knight argues that entrepreneurs have an unusually low level of uncertainty aversion (Baumol, 1993). 2.1.3 Innovation Scholars such as Schultz, Kirzner, Knight, and Schumpeter incorporate innovation into their definitions of entrepreneurship. Innovation is a crucial component of entrepreneurship because it is closely connected with the ability to deal with market disequilibria. Many theoretical definitions of entrepreneurship incorporate initiating 8

innovation (Schumpeter and Opie, 1983) and/or recognizing market opportunities (Schultz, 1975). Two scholars, Schultz and Kirzner, write that market opportunities and reallocating resources in response to these market opportunities is entrepreneurship, not initiating innovation. Schultz defines entrepreneurship as efficiently reallocating resources and dealing with disequilibria in the market to maximize profit (Klein and Cook, 2006; Iversen et al., 2008). Schultz (1975) argues that disequilibria exist, not because the entrepreneur does not see them, but because reallocating resources takes time. Israel Kirzner does not view returns to entrepreneurship as compensation for uncertainty (Ross and Westgren, 2006), but rather defines entrepreneurs as those who recognize profit opportunities brought about by economic shocks and move the economy towards equilibrium (Baumol, 1993). Unlike Kirzner and Schultz, Knight and Schumpeter's entrepreneur creates disequilibrium in the market economy that necessitates innovation or change (Knight, 1942; Schumpeter and Opie, 1983). He/she is responsible for initiating and adapting to economic changes and capturing scarce monopoly rents until those rents fall to zero. Knight's entrepreneur shocks the economy with innovation and as those innovations become adopted and diffused, he/she adapts to the changing market. Schumpeter's entrepreneur, however, is complex and worthy its own discussion. Joseph Schumpeter (1883-1950) represents the German school of economics that emphasizes entrepreneurship and innovation. Schumpeter believes the entrepreneur is the innovator who transforms inventions and ideas into economically viable entities (Baumol, 1990). Schumpeter defines the entrepreneur as someone motivated by profit to destroy outdated patterns of thought and action. Notably, Schumpeter did not think of all businessmen or capitalists as entrepreneurs because the entrepreneur can obtain credit, thereby making capital unnecessary. Schumpeter is widely known for his definition of creative destruction—the start up of new firms and displacement of the incumbents, thereby establishing superior economic performance in terms of both innovation and growth (Schumpeter and Opie, 1983). Schumpeter argued that innovation was the strategic stimulus for economic development; thus, innovation is a natural component of any definition of 9

entrepreneurship for economic development (Schumpeter and Opie, 1983). Innovation was the lynchpin of economic development to Schumpeter. Schumpeter lays out five tasks that lead to innovation (McGraw, 2007, Schumpeter and Opie, 1983). 1. Introduction of a new good, or a new quality of good 2. Introduction of a new method of production 3. The opening of a new market 4. The conquest of a new source of supply of raw materials or half-manufactured goods 5. The carrying out of the new organization These tasks suggest that Schumpeter thought of innovation as multi-faceted and included product, process, organization, purchasing, and marketing innovations. Including innovation in my definition of entrepreneurship allows for a qualitatively different measure of entrepreneurship, by enabling me to capture entrepreneurs who both create products and processes, rather than simply operate a small business. Despite Kirzner, Schultz, Knight, and Schumpeter incorporating innovation into their theoretical definitions of entrepreneurship, most empirical definitions of entrepreneurship overlook innovation, principally because innovation is difficult to measure. Thus, as of this writing, only second-best measures of innovation are available (Green etal., 2006). 2.1.4 Comparing Definitions of Entrepreneurship Table 2.1 presents these three widely recognized attributes of entrepreneurship— owner/operator, risk/uncertainty bearing, and innovation—and how definitions of entrepreneurship consider these three attributes. Even though these are commonly recognized attributes, Table 2.1 shows that no one functional definition adequately incorporates all three attributes of entrepreneurship. 10

Table 2.1 Comparison of Definitions of Entrepreneurship Cantillon von Thilnen Say Schumpeter Knight Kirzner Schultz Casson Owner/Operator X X X X X X X Risk Bearer Innovator | y* • V # y J ^ ^ X X X X X X X X X X X 2.2 PROPOSED DEFINITION OF ENTREPRENEURSHIP The complexity of entrepreneurship makes it impossible to capture the totality of entrepreneurship with one idea; therefore, I propose the following definition of entrepreneurship: The entrepreneur has an owner or operator function, a risk and uncertainty bearing function, and, perhaps most importantly, an innovation function. The combination of innovation, owning or operating an establishment, and bearing risk/uncertainty provides an effective working definition of entrepreneurship that is useful for economic development purposes. This definition captures all of the 11

components other scholars identity and is multi-faceted, to capture these multiple components of entrepreneurship (Figure 2.1). Owner or I Risk or I Operator I Uncertainty I Innovation I Bearing I Entrepreneurship Figure 2.1 Multi-Faceted Definition of Entrepreneurship The owner or operator function differentiates entrepreneurs from intrapreneurs and social entrepreneurs, by ensuring that the entrepreneur has a firm within which he/she can capture rents and capitalize on entrepreneurial skills. Risk bearers are the residual claimant to rents and face uncertain profits because employees and creditors must be paid first, leaving a positive or negative residual for the risk bearing entrepreneur. This uncertain return stimulates entrepreneurs who hope the return is lucrative. Finally, innovators create novel combinations of goods, services, and markets in response to economic opportunities, differentiating themselves from small business owners who do not innovate. Diminishing rents motivate entrepreneurs to constantly innovate and reallocate resources to capture changing market opportunities. This definition of entrepreneurship, like others, is difficult to formalize in a mathematical model. Kirzner argues that the entrepreneur is inherently unpredictable— making a predictive theory of entrepreneurship impossible (Casson, 2003). A formal mathematical or theoretical model has been the goal of many economists studying entrepreneurship, but to date none has been widely accepted. The inadequacy of economic theory in explaining dynamic processes and heterogeneous firms' actions in a solvable model has been the greatest hindrances to the development of a widely accepted model. Neoclassical models are easier to derive, but homogeneous firm and zero profit 12

assumptions combined with the lack of dynamic modeling diminishes this approach. Parker (2006) uses optimal control theory to develop a dynamic model that optimizes individual behavior, but is still limited by neoclassical assumptions. Endogenous growth theory removes the zero profit assumption but remains static and "entrepreneur-less," because firms are homogenous. Developing a theory of economic dynamics will be crucial for the advancement of economic theory, but could also prove very useful for research on both economic development and entrepreneurship (North, 1994). 2.3 CONCLUSION In this chapter, I have established a three-part conceptual definition of entrepreneurship, capturing the principal components of many functional theories of entrepreneurship. Although my definition may be imperfect, good science must begin with a good definition. This definition will serve the dissertation's purposes of contributing to the entrepreneurship and economic development literature, stimulating discussion among scholars about how entrepreneurship is conceptualized and measured, and providing a theoretically sound definition of regional entrepreneurship. 13

CHAPTER 3: CURRENT MEASURES OF ENTREPRENEURSHIP Measures of entrepreneurship utilized in economic development research and policymaking are based, not on ideal definitions of entrepreneurship, but on what data are available—a class of "second best" measures (Green et al., 2006). Many studies focus on the measurement of entrepreneurship (Gartner and Shane, 1995; Luger and Koo, 2005; Hoffmann et al., 2006) but no measure is clearly superior to others. Each metric has its own strengths and weaknesses and the choice of measure is likely to influence the research results (Gartner and Shane, 1995). In this chapter, I discuss the strengths and weaknesses of existing entrepreneurship measures, categorizing them by self employed, establishments, and births, and comparing each to the definition of entrepreneurship. I find that commonly used measures of entrepreneurship 1) ignore innovation, because it is difficult to quantify, and 2) are data-driven rather than driven by theory or definition. 3.1 SELF EMPLOYMENT The self employment rate is the most widely used measure of entrepreneurship in economic development applications and regional research (Iversen et al., 2008). Researchers have recognized self employment as a seedbed of entrepreneurship—and a convenient measure of entrepreneurs in a region (Low et al., 2005; Goetz and Rupasingha, 2008). Self employment is a stock measure, taken at one point in time, and stock measures are more stable year-to-year than flow measures, thus more suitable for cross-sectional studies (Gartner and Shane, 1995). Despite wide use of the self employment rate as a measure of entrepreneurship, it is an imperfect measure because it is very broad and captures all types of small business activity, not necessarily entrepreneurial activity (Acs et al., 2008). In this section, I discuss my analysis of self employment in the regional entrepreneurship literature. I find the self employment rate is an imperfect measure of jobs held by those who work for themselves; it is easy to obtain and captures entrepreneurial activity but not the extent to which entrepreneurs are successful or innovative (Munn, 2008). The self employment rate does meet owner/operator and risk- 14

bearing attributes of entrepreneurship but does not meet the innovation attribute. Ideally, we could measure activity of the innovative self employed—those offering new services, innovative products, or unique methods of production or delivery. Users should recognize that self employment is just a measure of self employment, not a definition of entrepreneurship (Georgellis and Wall, 2000). 3.1.1 The Use of Self Employment as a Measure of Entrepreneurship The self employment rate is often used to measure entrepreneurship because of its simplicity and availability. The self employment rate has been used for country-level studies (Iversen et al., 2008; Blanchflower, 2004; Blanchflower, 2000; OECD 2000; Parker 2005); regional studies (Parker, 1996; Georgellis and Wall, 2000; Shrestha et al., 2007; Glaeser, 2007 ; Goetz and Rupasingha, 2008; Acs et al., 2008; Saxenian, 1994; Schiller and Crewson, 1997); and longitudinal and panel studies of individual behavior (Baumol, 1993; Lazear, 2005; Reynolds and Curtin, 2008; Hamilton, 2000; Tamasy, 2006; Blanchflower and Oswald, 1998). The wide use of the self employment rate is likely because it is easy to measure with administrative records and publicly available data based on administrative records, e.g., the Bureau of Economic Analysis' Regional Economic Information System (BEA-REIS) or the Census Bureau's Nonemployer Statistics in the U.S. The most widely used measure of U.S. county-level self employment is defined as nonfarm proprietors in a county over total nonfarm employment (Low et al., 2005, Henderson et al., 2006, Goetz and Rupasingha, 2008). Researchers have also measured self employment with surveys of individuals, although this is not practical for U.S. counties (Lazear, 2005; Tamasy, 2006; Blanchflower and Oswald, 1998; Baumol, 1993). 3.1.2 Calculating the Self Employment Rate The self employment rate is more useful for interregional comparisons than the level of self employment. Self employment is usually normalized by employment, rather than population, because workers more closely represent the pool of nascent entrepreneurs. Employment and labor force are commonly used denominators, but U.S. county studies generally use nonfarm employment because nonfarm labor force data are 15

Full document contains 140 pages
Abstract: In this dissertation, I develop a definition and regional measure of entrepreneurship that will aid entrepreneurship research and economic development policy. My new indicators represent an improvement over current measures of entrepreneurship. The chief contribution of these new indicators is that they incorporate innovation, which others ignore. These indicators represent a significant contribution to the literature and can stimulate discussion among entrepreneurship scholars about how we conceptualize and measure entrepreneurship. Chapter 1 motivates the need for a different regional measure of entrepreneurship. Chapter 2 posits a three-part definition of entrepreneurship, with roots in the work of early entrepreneurship scholars including Schumpeter, Knight, and Say. Chapter 3 assesses widely used measures of entrepreneurship and their relevance to the proposed definition. The lack of a clear definition and measure of entrepreneurship hinders the research informing entrepreneurial support policies (Bruyat and Pierre-Andre, 2000). Chapter 4 develops new indicators of entrepreneurship that capture all three components of the proposed definition. The identification of innovative industries, industries with high level of skill, technology, patents, churn, and employment growth, using detailed NAICS (North American Industrial Classification System) industry data, represents an important contribution of this dissertation. By applying the innovative industries to single-unit employer establishment birth and self employment data, I create indicators that are available annually for all counties. Using the reduced-form model of entrepreneurship developed by Goetz and Rupasingha (2008), Chapter 5 assesses the determinants of the new entrepreneurship indicator. In Chapter 6, I use a growth model recently developed at the U.S. Department of Agriculture's Economic Research Service (McGranahan, Wojan, and Lambert. 2009) to examine the relationship between my new indicator of entrepreneurship and economic growth. I find a positive and robust relationship between growth and my new indicator of entrepreneurship. Chapter 7 reviews the results and addresses policy-implications, problems, and future work.