Gorchynska Valeriia

Donbass national academy of civil engineering and architecture, Ukraine

A REVIEW OF CURRENT CONSTRUCT MEASUREMENT IN ENTREPRENEURSHIP

Entrepreneurship has become a focal point of public policy as governments at all levels have made promoting entrepreneurship a priority. However, existing research is far from conclusive in terms of providing a comprehensive definition or measure of entrepreneurship [1]. There are several reasons why researchers have had a difficult time defining entrepreneurship. First, there is no agreement on whether entrepreneurship is a characteristic of people or whether it is a process. Second, since entrepreneurial activity often overlaps with other business activities, it is difficult to isolate when and where it actually happens. Third, entrepreneurship can occur in numerous organizational forms. Fourth, there is disagreement on whether entrepreneurship should be defined by the characteristics of entrepreneurs, how they make their decisions, or how they create opportunities [2]. There are multiple definitions of entrepreneurship results in a large number of different measures of entrepreneurship. Many current entrepreneurship measures are limited in scope because they (often purposely) focus on just one aspect of entrepreneurship, such as self-employment or business start-up rates. Moreover, many of these measures suffer from methodological and statistical problems. Overall, the current stock of measures fails to provide a comprehensive picture of entrepreneurship. Most importantly, a lack of comprehensive measurement means that there is no way to determine where and why entrepreneurship flourishes.

GEM’s TEA Index has its advantages as a measure of entrepreneurship. As evidenced by being widely cited, it offers an easy to understand measure of new firm formation, an important element of entrepreneurship. However, it also has a number of disadvantages. First, it is a narrow measure. The implication of this is that the GEM fails to capture entrepreneurship that occurs within existing firms.

Another important measure of entrepreneurship is the Kauffman Index of Entrepreneurial Activity (Fairlie, 2006). This index, which focuses on the US states, uses one measure: the rate of business creation at the individual owner level. Specifically, it measures the proportion of adult non-business owners per 100,000 population who create a new business each month, including employer and non-employer businesses, incorporated and unincorporated businesses, across all industries. The Kauffman index marks an improvement over the GEM index in that it focuses exclusively on actions taken by individuals and excludes people who are only intending to act entrepreneurially. The major disadvantage of the Kauffman index, however, is that it consists of only one measure. Consequently, similar to the GEM, it misses all the other important elements of entrepreneurship.

The World Bank Group’s Entrepreneurship Database (2012) measures entrepreneurship using business start-up rates in 84 countries. The survey also measures business density and the distribution of businesses by industrial sector. The primary advantage of the World Bank survey is its breadth of measurement. It measures business start-up rates across a large number of countries in many different global regions with a number of different policy regimes. Another practical advantage of the survey is that it is easily available, and the data of the survey can be downloaded from the internet. The major disadvantage of the World Bank survey is that the definitions and measures of business start-up rates used are not consistent across the countries surveyed [3]. Consequently, little can be concluded about the start-up rates in different countries. Another disadvantage of the World Bank survey is that it only includes one aspect of entrepreneurship.

Overall, the most widely used measures of entrepreneurship fail to capture the common aspects of entrepreneurship specified in the first section: enterprise, innovation, process, spectrum of entrepreneurial action, and economic change. In fact, what is consistent among the various attempts to measure entrepreneurship is the focus on just one or two indicators.

Essentially, there is a need for a comprehensive measure of entrepreneurship, one that attempts to capture the various aspects of entrepreneurial activity and is well connected to entrepreneurship theory. Accordingly, it can be provided a number of empirical indicators of entrepreneurship that could be used to create a comprehensive measure. In particular, six indicators that have readily available and comparable data: business creation, selfemployment, small businesses, venture capital, R&D, and patents.

Most of these empirical indicators had a fairly wide distribution, which suggests that there are important differences in the structure and level of entrepreneurial activity across regions. The potential measures presented should be further scrutinized and discussed to determine whether they should be included in a comprehensive measure of entrepreneurship, and how they might best be measured.

Having a sound concept of entrepreneurship and knowing where it flourishes will have profound effects on the discussion of public policy. Once we can measure entrepreneurship, we can investigate the reasons why some regions have more than others, and then we can begin to understand and promote policies that will create an environment that is conducive to entrepreneurship.

References:

1. Keith Godin, Jason Clemens, and Niels Veldhuis, Measuring Entrepreneurship: Conceptual Frameworks and Empirical Indicators (Vancouver, BC: Fraser Institute, 2008) – [electronic resource] way of access www.fraserinstitute.org/

2. Alvarez, Sharon. Theories of Entrepreneurship: Alternative Assumptions and the Study of Entrepreneurial Action. Foundations and Trends in Entrepreneurship 1, 3: 105–148.

3. The Global Entrepreneurship Monitor – [electronic resource] way of access <http://www.gemconsortium.org/>

4. Audretsch, David, Taylor Aldridge, and Alexander Oettl (2006). The Knowledge Filter and Economic Growth: The Role of Scientist Entrepreneurship. Ewing Kauffman Foundation.

5. World Bank Group (2008). Entrepreneurship Database. <http://www.gcgf.org/ifcext/sme.nsf/Content/Entrepreneurship+Database>.