Rising Inequality and Entrepreneurship during Economic Downturn: An Analysis of Opportunity and Necessity Entrepreneurship in Spain

María-Teresa Aceytuno,Celia Sánchez-López,Manuela A De De Paz-Báñez

doi:10.3390/su12114540

María-Teresa Aceytuno, Celia Sánchez-López + Show 1 more

Open Access

https://doi.org/10.3390/su12114540

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Journal: Sustainability	Publication Date: Jun 3, 2020
Citations: 19	License type: CC BY 4.0

Affiliation: Universidad de Huelva

Abstract

There is a consensus among researchers that one of the most important effects of the recent economic downturn that started in 2009—also known as the Great Recession—in Spain has been rising income inequality. In this context, researchers are concerned about the effects of inequality on the economy, and this concern is even more marked now, when the world is facing a new crisis that seems the equal of, or even more devastating than the last Great Recession as a consequence of Covid-19. Nevertheless, there is a lack of studies which consider the effects of inequality on entrepreneurship. This paper aims to contribute to a deeper understanding of the relationship between inequality and entrepreneurship in the context of an economic downturn. We focus on the 17 autonomous communities in Spain during the Great Recession (2007–2013). Using unbalanced panel data, we study the effect on entrepreneurial activity, differentiating between total, necessity- and opportunity-driven entrepreneurship. The contribution of this paper is twofold. First, our results offer new empirical evidence concerning the relationship between growing inequality and entrepreneurial activity, showing significant differences from results in the existing literature. Second, we explain how, in a recessionary context of highly restricted financial resources, inequality can negatively affect total, necessity- and opportunity-based entrepreneurship, preventing a large part of the population from engaging in this activity.

Highlights

Over the past three decades, the vast majority of OECD countries have seen a rise in income inequality, and there is a growing interest among policy makers towards the socio-political consequences of this trend
We developed an analysis of the effect of rising economic inequality on entrepreneurial activity, with a focus on the seventeen autonomous communities making up Spain during the Great Recession
The main difference between our analysis and the empirical studies reported in the literature is that we focus on a crisis period, namely, the Great Recession in Spain, when the economy across all regions was affected by rising rates of unemployment and increasing poverty

Summary

Introduction

Over the past three decades, the vast majority of OECD countries have seen a rise in income inequality, and there is a growing interest among policy makers towards the socio-political consequences of this trend. There are reasons to believe that entrepreneurial activity and economic inequality are linked. The distribution of financial resources within the population accounts for economic inequality and, at the same time, may lead to an increase in entrepreneurial activity. There is a wide literature that recognizes the importance of institutional factors as determinants of entrepreneurship, considering both formal and informal institutions [4,5]. Formal institutions are examined in comparative entrepreneurship research in terms of institutional economics, while in the case of informal institutions the prevalent approaches are cultural sociology and cross-cultural psychology [4]. Among the institutional factors related to inequality which have been studied as determinants of entrepreneurship are capital markets, wealth transfer and labor market policies [6,7]

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