Abstract
We used a high-quality cross-sectional data set that covers a diverse set of 29 transitional countries, to find the effect of education of probability of people being self-employed using standard probit models and instrumental variable biprobit that address endogeneity. Our findings suggest a negative effect of university education on the propensity of being self-employed. This finding remains the same for the single-stage model (i.e. standard probit) and the instrumental variable model (i.e. biprobit). We found strong endogeneity in the estimation of education effect on the propensity of being self-employed, ignoring which renders estimations biased. Regression models, which do not address endogeneity tend to underestimate the negative effect of the education on the probability of being self-employed in the countries of transition. Researchers should use alternative approaches to reduce endogeneity, such as instrumental variables and longitudinal analysis.
Highlights
What is the effect of university education in transitional countries on the likelihood of being self-employed? Do individuals with university education have higher or lower probability to be self-employed versus being wage-earners in these countries? Does such probability vary across transitional regions?
After controlling for trust in people and risk acceptance of respondent in Model 2, the negative effect of university education on the probability of self-employment increased to 8.3 percentage points
The results suggest that university education reduces the propensity of being selfemployment by 10.2 and 33.4 percentage points in the former Soviet Union (FSU) region
Summary
What is the effect of university education in transitional countries on the likelihood of being self-employed? Do individuals with university education have higher or lower probability to be self-employed versus being wage-earners in these countries? Does such probability vary across transitional regions?Answering these questions are important since developing free private entrepreneurship has been one of the most important features of transition from a centrally-planned economy to a market one (Nikolova et al 2012). What is the effect of university education in transitional countries on the likelihood of being self-employed? Answering these questions are important since developing free private entrepreneurship has been one of the most important features of transition from a centrally-planned economy to a market one (Nikolova et al 2012). New entrepreneurs can find a niche in businesses that did not exist before transition or were stagnant under centrally-planned systems (Berkowitz and DeJong 2011). Private entrepreneurship provides an important protection again income shocks associated with transitional processes by providing an alternative source of income and employment (George et al 2012). McMillan and Woodruff (2002, p. 154) concluded, Bthe success or failure of a transition economy can be traced in large part to the performance of its entrepreneurs^
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