(The) effect of public policy on entrepreneurship activity

Abstract

SME and entrepreneurship policy makers who are confronted with economic crises take into account which policy is the first to be implemented as well as those that come. Hence, three questions are of concern here: 1. What policies are effective for entrepreneurship activity and how are they effective? 2. What effects of those policies differ corresponding to the different intensity of entrepreneurship activity? 3. Why was Asian entrepreneurship activity low from 1998 to 2004? This study aims to propose which variables of public policies have an effect on promoting start-up entrepreneurship. Therefore, the relationship between public policies and firm birth rate across 27 countries is examined using ordinary least squared regression analysis. This paper conducts this analysis using OECD annual data from 1998 to 2004. 75 independent variables were selected from following OECD databases: Finance, ; National Accounts, ; Labor, ; Demography and Population, ; Science, Technology and Patents, ; and Public Sector, Taxation and Market Regulation. Four equations are examined. Three equations capture the relationship between firm birth rate and each field concerning public policy, and one equation considers all fields. In order to obtain an overall picture with meaningful factors regressions were computed, and each time adding one variable was added each time to the baseline model. As a result, a complete multivariate model was formulated. Subsequently a `developed country` dummy was included in the model to observe the group effect of developed and developing countries. It was that ‘Short-term interest rate’, ‘Public expenditure on startup incentives’ and ‘Institutional investor assets’ have strong positive effects on the variable of firm birth rate. Similarly, differences are shown between countries with high and low firm birth rate. In Eq. (2), which analyzes the relationship between firm birth rate and labor policies, ‘Public expenditure on labor ma...