Who are entrepreneurs in Russia, Brazil, and China

1
Who are entrepreneurs in Russia, Brazil, and
China?

• Simeon Djankov, World BankYingyi Qian, UC
  Berkeley and CEPRGérard Roland, UC Berkeley and
  CEPREkaterina Zhuravskaya, CEFIR and CEPR

2
Motivation

• Entry and SMEs growth is strongly emphasized as a
  priority in policy agenda of most developing and
  transition countries
• Economic theory, i.e., endogenous growth,
  development and transition literatures, also
  stress the importance of entrepreneurship for
  economic growth and development
• So far, however, there has been little evidence
  on factors determining entrepreneurial activity
• Its understanding is crucial for policy-making
• Institutional reforms may be disappointing if
  roots of entrepreneurship lie in culture or in
  personality traits

3
Three perspectives on entrepreneurship in social
sciences

• Institutions
• Credit constraints
• Security of property rights
• Regulatory burden
• Sociological variables
• Culture, religion, values, trust
• Social networks
• Personality traits
• Need for achievement, Belief in personal effort,
  Self-confidence, and Attitudes towards risk
• Lots of research within disciplines little work
  that looks at each of these factors controlling
  for the other ones

4
Large project

• Provide empirical evidence on determinants of
  entrepreneurship in BRINC (Brazil, Russia, India,
  Nigeria, China)
• countries with sufficient regional variation
  unequal length of experience with
  entrepreneurship that cover 44.8 of the Earths
  population
• Using similar instrument, survey entrepreneurs
  and non-entrepreneurs in order to inquire about
• individual characteristics sociological
  variables and perceptions of institutional
  environment
• Explore individual, regional, country-level
  variation
• So far results from pilot studies in Russia,
  China, and Brazil

5
Structure of the pilots

• In each country, survey individuals in seven
  cities of four regions
• A random sample of 400 entrepreneurs (414 in
  China)
• Defined as owner-manager of a business with 5 or
  more employees
• An sample of 540 non-entrepreneurs (561 in China)
• Partly matched by age, gender, and education
• Russia Survey in seven cities in 2003-2004
  academic year
• Moscow Nizhny Novgorod and Dzershinsk in the
  Nizhegorodskaya oblast Perm and Chaykovsky in
  the Permskaya oblast Rostov on the Don and
  Taganrog in the Rostovskaya oblast
• China Survey in seven cities in 2004-2005
  academic year
• Beijing Wuhan and Huangshi in the Hubei
  province Guangzhou and Zhongshan in the Guandong
  province Xian and Baoji in the Shanxi province
• Brazil Survey in seven cities in 2005 year
• Sao Paulo Curitiba and Londrina in the Sul
  region Salvador and Feira de Santana in the
  Nordeste region Brazilia and Goiania in the
  Centro Oeste region
• In China and Russia An additional short survey
  among a random sample of 1200 respondents about
  their basic personal characteristics and whether
  they are entrepreneurs to get information about
  the structure of the population. In India this
  information came from the population census

6
There is vast within country variation in
entrepreneurship x-country - the most widespread
in Brazil, and the least in Russia
7
1. Differences in Personality traits, Social
environment, Trust, and Values

• Comparison of conditional means
• condition on city-level dummies (institutional
  environment), age, gender, education and
  education sqrd
• Standard errors are corrected for clusters in
  error terms at the city-level

8
Mobility and attitude towards risk E are more
mobile geographically in all three countriesE
are mobile across jobs and industries in Russia
and China, and less in Brazil E are more
risk-loving in Russia and China
Different Scale here
9
Motivation and happiness E more happy (in China
insignificant) Preference for work over leisure
in three countries In China and Russia
entrepreneurs are greedy and in Brazil the
relationship is reversed
10
Example China (in )
E want to continue of won a lot of money and
the reason is to earn even more money
Over-confidence both better then average bias
and knowledge overconfidence on trivia
questions. In Brazil the opposite effect to what
physiologists predicted entrepreneurs more
adequately assess their abilities and knowledge
than non-entrepreneurs.
11
Legal social normsIn Russia and China
entrepreneurs are more tolerant to corruption and
unlawful behavior than NE in Brazil the
opposite
12
Work ethic and trustWork ethic everywhere in
China and Russia E lower general trust and in
Brazil higher E trust government more in China
and Brazil
13
Social environmentEntrepreneurs have more
friends and family members entrepreneurs in all
three countries
Important to note that these may not be causal
due to both omitted variable and reverse
causality. In Brazil were able to instrument
with birth order and found causal effect
14
2. Physiological and Sociological determinants
of entrepreneurship(controlling for
institutional variation with city-level dummies)

• - So far, just summarized the differences b/w E
  and NE
• But many of these differences are driven by
  careers of the respondents. I.e., values and
  perceptions of social norms and business climate
  are formed on the basis of peoples experiences
• Next step is to look at factors that arguably
  can be considered exogenous

15
Effect of individual characteristics and social
environment controlling for institutional
environment

• Probit regressions. Dependent variable
  P(entrepreneur vs. non-entrepreneur)
• Control for city fixed effects, gender, age,
  education, and education squared.
• Report marginal effects.
• Robust standard errors in brackets.

16
X-country comparisons of the individual and
social effects

• Probit regressions. Dependent variable
  P(entrepreneur/non-entrepreneur)
• Also control for gender, age, education, and
  education squared.
• Report marginal effects.
• Robust standard errors in brackets.

17
Expl China
Standard errors corrected for clusters in the
error terms at the city-level
18
China Failed entrepreneurs

• Failed E
• Have the highest shares of E among family and
  friends
• Shortest
• Least smart
• Best self-reported performance in school
• Consider government as least favorable

19
China Necessity vs. opportunity

• E by necessity
• In the middle b/w NE and E by opportunity
• E among friends and family
• Risk attitude
• Greed
• But they are closer to E than to NE

20
3. Importance of financial constraints
21
Personal saving is the main source of financing
for start-ups in all three countries
22
Retained earnings is the main source of financing
of expansion
Brazil stands out much better access to outside
finance more government money
23
Lack of finance is the main reason not to start a
business in all three countries
24
Financial constraints are important reason even
not to think about entrepreneurship
BRAZIL
CHINA
25
In China finance is relatively more important
constraint to expand business compared to Brazil
26
4. Institutional environment and entrepreneurship

• Methodology Take city fixed effects after
  controlling for social and individual
  characteristics and correlate with average city
  perceptions of institutions
• Here report correlations for the of
  entrepreneurs across cities
• We get the same results with the growth of
  business

27
Share of entrepreneurs and petty corruption
significant negative correlation (even
controlling for country differences)
28
Share of entrepreneurs and state capture
significant negative correlation (even
controlling for country differences)
29
Share of entrepreneurs and crime significant
negative correlation (even controlling for
country differences)
30
Share of entrepreneurs and quality of courts
positive (insignificant) correlation controlling
for country differences
31
Share of entrepreneurs and rackets insignificant
correlation
32
Share of entrepreneurs and attitude of population
towards entrepreneurs no correlation
33
Paternalistic governments are negatively
associated with plans to expand business

• Probit regressions. Dependent variable P(plans
  to expand)
• Control for city fixed effects, gender, age,
  education, and industry.
• Report marginal effects.
• Robust standard errors in brackets.

34
CHINA Perceptions of institutional environment
E perceive business climate as more friendly than
non-entrepreneurs
35
Conclusions (1) similarities

• What is similar in all three countries
• Entrepreneurs is a special group of people with
  distinct values and personality traits compared
  to non-entrepreneurs
• particularly, work ethics and value of power
  common to all three countries
• Social environment is extremely important for
  entrepreneurship and robust in all three
  countries
• Presence of entrepreneurs among family and
  childhood friends increases the probability of a
  person to become an entrepreneur (subject to
  possible endogeneity problem)
• Social class boss or director in the family and
  having richer families
• Effect of institutions (corruption, courts,
  credit constraints)

36
Conclusions (2) differences

• What is different
• Effects of some personality traits differ across
  countries
• Greed, risk-loving, mobility across jobs and
  industries is higher for E than for NE in China
  and Russia, but the sign is reversed in Brazil
• Attitude towards legal norms (China - Russia vs.
  Brazil)
• Why?
• One possibility is the absence of history of
  entrepreneurship in China and Russia (all
  entrepreneurs are start-up entrepreneurs) while
  in Brazil long-surviving family firms and
  established norms and traditions