Entrepreneurial Quality and Startup Growth in India

Abstract

This study extends and applies the methodology proposed by Guzman and Stern (2015) to estimate and map the quality of entrepreneurship in India, using government census data for 1,542,555 registered micro, small, and medium enterprises (MSMEs), spanning all 29 states in India. To our knowledge, this is the first study of its kind to quantify and characterize the quality of entrepreneurship in India based on cohort growth outcomes and firm characteristics at the time of registration. Methodologically, we define two types of growth outcomes: attaining a “public” corporation status within a set timeframe after founding (5-years, 10-years, 15-years), and achieving a set annual employee growth rate. We find that a small set of firm characteristics established at founding predicted long-run growth outcomes. Firms’ cluster status at founding predicted 58 percent higher probability of going “public” within 10 years, the original purchase value of assets predicted 62 percent higher probability of going public and 66 percent higher probability of employee growth, and urban location predicted 35 percent lower probability of going public and 33 percent lower probability of employee growth. Using these results, we then estimate entrepreneurial quality based on the Entrepreneurial Quality Index (EQI) and the Regional Entrepreneurship Cohort Potential Index (RECPI). We find that spatial patterns of high-growth entrepreneurship in India followed similar coastal effects and university-hub effects as those documented in the United States. We conclude with directions for future research.