High Income Inequality as a Structural Factor in Entrepreneurial Activity

Antonio Lecuna

doi:10.4067/S0718-27242014000100002

Authors

Antonio Lecuna Universidad del Desarrollo

DOI:

https://doi.org/10.4067/S0718-27242014000100002

Keywords:

Entrepreneurial activity, income inequality, institutions, Gini index

Abstract

Statistical tests on a panel of data from 54 countries over the 2004–2009 period support the proposition that high income inequality and entrepreneurial activity share a positive linear relationship. In a novel approach, the dependent variable is defined from two independent and uncorrelated perspectives: (1) the World Bank Group Entrepreneurship Snapshot, which measures new business entry density based on secondary official sources; and (2) the Total Early Stage Entrepreneurial Activity of the Global Entrepreneurship Monitor project, which is a survey-based measure of formal and informal entrepreneurial participation rates. The empirical strategy is based on the logic that economies with increasing concentrations of wealth tend to encourage entrepreneurial activity because entrepreneurs accumulate more income than workers. Following the disequalizing model, once this inequality appears, it is reinforced in successive generations. The intuition behind this outcome is that a certain level of initial capital is required to establish a new enterprise, which implies that the probability of becoming an entrepreneur increases if an individual has inherited wealth.

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Author Biography

Antonio Lecuna, Universidad del Desarrollo

Antonio Lecuna is an assistant professor in the School of Business and Economics at Universidad del Desarrollo. His research interests are entrepreneurship, institutions, and Latin American Studies. Recent publications include ‘Corruption and Size Decentralization’ (Journal of Applied Economics, 2012) and ‘From Chavismo to a Democratic Left in Venezuela’ (Dissent, 2013).

Correspondence address: Ave. La Plaza 680, Las Condes, Santiago, Chile. Phone: +(56 2) 327 3777. Email: alecuna@udd.cl

MANUSCRIPT

An approximation of the findings titled “Is high-income inequality the price that has to be paid to foster entrepreneurship?” was presented at the 8th Iberoamerican Academy Conference held in December 2013 in São Paulo.

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