The dynamics of causality between entrepreneurship and unemployment Online publication date: Fri, 14-Sep-2007
by Rui Baptista, Miguel Torres Preto
International Journal of Technology, Policy and Management (IJTPM), Vol. 7, No. 3, 2007
Abstract: This paper examines the dynamic interrelationship between different measures of entrepreneurship – business-ownership rates and entry rates – and unemployment rates for Portugal over the period 1983–2000. On the one hand, unemployment rates may stimulate start-up activity of self-employment. On the other hand, higher start-up rates, or higher self-employment, may facilitate industrial restructuring and renewal, decreasing unemployment in subsequent periods. The overlap between these two effects results in ambiguity about the interrelationship between unemployment and entrepreneurial activity. This paper uses a two-equation Vector Autoregression (VAR) model capable of reconciling these ambiguities and tests it with data from 30 Portuguese regions. The empirical results confirm that the relationship between unemployment and entrepreneurship is ambiguous, regardless of the specific measure used to account for increases in entrepreneurial activity.
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