Family and Community Influences in Entrepreneurship
Research Paper Title:
“On the origins of entrepreneurship: Evidence from sibling correlations”
Authors:
Theodor Vladasel (Universitat Pompeu Fabra)
Matthew Lindquist (Swedish Institute for Social Research)
Joeri Sol (University of Amsterdam)
Mirjam Praag (Copenhagen Business School)
Background:
Families provide a rich context filled with numerous factors that affect the development of entrepreneurial preferences and skills, such as role models or resource access. The timing of these factors during formative years generates a hierarchy of family influences, with larger roles for influences that exploit the malleability of human capital early in life. Comparing entrepreneurial outcomes of children from the same family, the researchers find that genes have the largest explanatory power, followed by parental entrepreneurship, neighborhood effects, and parental resources; immigration status, family structure, and sibling peer effects appear much less important for entrepreneurial outcomes. This study shows that individuals' early lives are crucial for understanding the origins of entrepreneurship and that concerted investments during formative years, such as entrepreneurial training programs improving leadership skills, can aid young adults in their efforts to become successful entrepreneurs that deliver innovation, job creation, and growth.
Methodology:
Sample: Swedish administrative data
Sample Size: 696,231 individuals in 430,935 families
Analytical Approach: Sibling correlations (variance decomposition technique)
Hypothesis:
Family and community background explain a substantial share of variation in individuals' entrepreneurship outcomes.
Shared genes contribute the most to sibling correlations, followed by parental entrepreneurship, neighborhood effects and parental resources, and finally by parental immigration status, family structure, and sibling peers.
Sibling correlations in incorporated entrepreneurship are larger than sibling correlations in unincorporated entrepreneurship.
Neighborhood effects contribute more to sibling correlations in unincorporated entrepreneurship than to sibling correlations in incorporated entrepreneurship.
Parental resources contribute more to sibling correlations in incorporated entrepreneurship than to sibling correlations in unincorporated entrepreneurship.
Non-cognitive ability contributes more to sibling correlations in incorporated entrepreneurship than to sibling correlations in unincorporated entrepreneurship.
Brother correlations are larger than sister correlations in unincorporated and incorporated entrepreneurship.
Neighborhood effects contribute more to brother correlations than to sister correlations in unincorporated entrepreneurship.
Parental resources contribute more to sister correlations than to brother correlations in incorporated entrepreneurship.
Sibling peer effects contribute more to brother correlations than to sister correlations in entrepreneurship.
Results:
1. Family and community background explains up to 45% of variation in entrepreneurship, with larger correlations for men.
2. Shared genes matter most, then parental entrepreneurship, resources, and neighborhoods; parental immigration, family structure, and sibling peers have smaller influences.
3. Incorporation draws more strongly on parental resources and type-specific role models.
4. Early influences matter more than later influences for human capital formation, in line with a hierarchy of family and community influences in entrepreneurship.
Conclusion:
Family and community background provide a salient context for the formation of individual entrepreneurial skills and preferences, extending far beyond a narrow focus on parental entrepreneurship. While the researchers view their results optimistically - as providing significant scope for individuals to learn how to become entrepreneurs - one should not ignore the large role of families in determining entrepreneurial outcomes. It is not clear that all young people with similar entrepreneurial skills have the same chances and opportunities to actually develop into entrepreneurs. As such, there may be a pool of entrepreneurial talent that society could dip into and develop; and in doing so increase both equality of opportunity and economic efficiency.