Returns to micro-entrepreneurship in an emerging economy: A study of entrepreneurial Indonesian households welfare by quantile

Transcription

1 FKP seminar - BKF 15 July 2014, Jakarta in an emerging economy: A study of entrepreneurial Indonesian households welfare by quantile Virginie Vial a, b Julien Hanoteau a, b a: KEDGE Business school, Marseille, France b: GREQUAM, Aix-Marseille University

2 Outline Motivation Assumptions Data and methodology Results and discussion

3 An apparent paradox Novel approach An apparent paradox of micro-entrepreneurship in emerging countries It is widespread and highly developed (the informal economy) despite underdeveloped and/or failing institutions an apparent low productivity, lower than for other activities (employment in the formal sector)

4 An apparent paradox Novel approach 1 To solve this apparent paradox, La Porta and Shleifer (2008) suggest that Microentrepreneurship is a response to poorly run institutions in the form of a social safety net, an answer to missing social protection, the precariousness of the employment sector and the absence of formal insurance mechanisms People run micro-enterprises and are self-employed, generally in combination to another job in order to: increase earnings for them and their household Diversify their sources or earnings and to cope with risks to themselves and their family 2 The literature usually assesses the returns to micro-entrepreneurship by considering only the single entrepreneur s income

5 An apparent paradox Novel approach In this paper, we analyze the returns to micro-entrepreneurship participation for the household and not just the single entrepreneur in terms of income, consumption and assets, and not only the first. These are three complementary components of economic welfare. They permit to: cover the market and non-market, as well as short term and long term sources of welfare encompass the dimensions of economic welfare: providing means, fulfilling basic needs, coping with risks.

6 H1: In the context of developing countries, on average, and within each quantile of the economic welfare distribution, households participating in entrepreneurship display higher economic welfare (income, consumption, and assets). H2: In the context of developing countries, returns to micro-entrepreneurship participation decrease along the economic welfare distribution (income, consumption, and assets). H3: The effect of entrepreneurship participation is stronger on assets than on consumption, and the spread between the two respective effects declines over the welfare distribution.

7 Data Model Indonesian micro-entrepreneurship Rand Indonesian Family Life Survey (IFLS), 4 waves of survey in 1993, 1997, 2000 and ,218 households (out of 14,901 representative of 83% of the Indonesian population) observed during at least 2 waves. Panel sample with 21,487 observations (unbalanced) Entrepreneurial qualities of the population All households participate to some form of employment (formal, informal) Comparison of households participating to entrepreneurship with those who don t.

8 Data Model Model Econ.Welfare it =a + b.entrepreneurship it-1 +c.controls it +d.year dummies t +e it-1 3 alternative measures of Economic Welfare: income, consumption, assets i: household Controls: age, gender, marital status, household size, family structure, location Simultaneous Instrumental Variable quantile regression techniques: bottom 10%, [10-25%[, [25-50%[, [50-75%[, [75-90%[, top 10% of the welfare distribution. Entrepreneurship instrumented with household participation to Arisan

9 Data Model Correlation matrix (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (1) Income (log) 1.00 (2) Consumption (log) 0.37* 1.00 (3) Assets (log) 0.31* 0.58* 1.00 (4) Entrepreneurship t-1 (dummy) 0.08* 0.14* 0.15* 1.00 (5) Social capital (dummy) 0.10* 0.08* 0.14* 0.06* 1.00 (6) Married (dummy) 0.19* 0.08* 0.09* * 1.00 (7) Household head male (dummy) 0.19* 0.07* 0.08* -0.01* 0.08* 0.77* 1.00 (8) Household head age (log) -0.17* -0.05* 0.04* 0.04* -0.05* -0.20* -0.15* 1.00 (9) Familly structure (ratio) 0.04* -0.10* -0.11* -0.03* 0.03* 0.24* 0.17* -0.44* 1.00 (10) Household size (log) 0.18* 0.14* 0.13* 0.09* 0.09* 0.18* 0.14* 0.03* 0.21* 1.00 (11) Urban (dummy) 0.07* 0.20* 0.17* 0.11* 0.16* -0.03* -0.02* * 0.07*

10 Results Discussion Simultaneous Intrumental variable quantile regressions quantiles q10 q25 q50 q75 q90 independant v. (A) (A) (A) (A) (A) Entrepreneurshipt *** 10.55*** 9.23*** 8.81*** 7.55*** Married 2.54*** 0.25*** 0.15*** 0.09*** 0.02 Household head male 6.34*** 0.98*** 0.63*** 0.54*** 0.48*** Household head age 68.12*** 3.64** -5.67*** -9.19*** -8.15*** Household head age² -9.62*** -0.71*** 0.58*** 1.06*** 0.96*** Family structure -0.52*** -0.36*** -0.30*** -0.36*** -0.37*** Household size 1.52*** 1.06*** *** -0.54*** Household size² -0.61*** -0.41*** -0.09*** ** Urban -0.93*** -0.26*** -0.19*** -0.20*** -0.16*** Year *** 1.66*** 1.55*** 1.52*** 1.49*** Year *** 2.09*** 2.15*** 2.18*** 2.32*** Constant *** *** 30.18*** 28.98*** Observations Pseudo-R² * p<0.10, ** p<0.05, *** p<0.01. dependent v. Income = (A)

11 Results Discussion Simultaneous IV quantile regressions dependent v. Consumption = (B) ; Assets = (C ) quantiles q10 q25 q50 q75 q90 independant v. (B) (C) (B) (C) (B) (C) (B) (C) (B) (C) Entrepreneurshipt *** 19.02*** 7.05*** 14.88*** 7.32*** 12.33*** 7.68*** 11.55*** 8.06*** 9.67*** Married 0.19*** 0.62*** 0.19*** 0.22*** 0.15*** 0.13*** 0.09*** 0.12** 0.12*** 0.11* Household head male 0.35*** 0.72*** 0.32*** 0.64*** 0.36*** 0.55*** 0.38*** 0.50*** 0.34*** 0.45*** Household head age -6.79*** *** -6.73*** *** -7.87*** *** -8.47*** *** *** -9.63*** Household head age² 0.80*** 2.50*** 0.80*** 1.84*** 0.95*** 1.71*** 1.03*** 1.75*** 1.29*** 1.24*** Family structure 0.38*** *** *** ** ** Household size -0.39*** *** *** -0.19** -0.62*** -0.39*** -0.79*** -0.76*** Household size² -0.06*** -0.42*** *** 0.03* -0.19*** 0.03*** -0.12*** 0.08*** 0.02 Urban -0.33*** -1.65*** -0.26*** -0.86*** -0.23*** -0.42*** -0.20*** -0.16*** -0.15*** 0.14** Year *** 1.62*** 1.48*** 1.56*** 1.45*** 1.52*** 1.46*** 1.45*** 1.44*** 1.37*** Year *** 1.26*** 2.23*** 1.60*** 2.18*** 1.78*** 2.17*** 1.75*** 2.21*** 1.82*** Constant 24.83*** 44.30*** 25.13*** 36.75*** 27.77*** 36.68*** 29.30*** 38.23*** 33.59*** 31.96*** Observations Pseudo-R² * p<0.10, ** p<0.05, *** p<0.01.

12 Results Discussion Effect of entrepreneurship participation on economic welfare as % of economic welfare mean value per quantile a quantile Income 138% 80% 64% 56% 45% Consumption 56% 50% 48% 47% 47% Assets 146% 103% 78% 67% 53% a coefficient (table???) divided by the mean value of the variable per quantile

13 Results Discussion Micro-entrepreneurship participation increases households economic welfare on all three components, income, consumption and assets. This occurs for all strata of the population, but stronger effect for the poorest household and then decline along the welfare distribution Micro-entrepreneurship contribution in terms of additional assets always exceeds contribution in terms of additional consumption, and the spread is stronger for the poorest. This confirms the use of micro-entrepreneurship as response to institutional failure, as a social safety-net, a complementary earning, a market and nonmarket source of consumption, and a risk coping strategy.

14 Results Discussion This confirms empirically: These results contrast with what other researchers usually claim (Low/lower productivity of micro-entrepreneurship) This is because we: account for micro-entrepreneurship embeddedness in household consider the various rewards (income, consumption, assets) of microentrepreneurship that are components of economic welfare, covering short- and long-term, as well as market and non-market perimeters. This has implication for future research and for policy makers willing to address micro-entrepreneurship and development

15 Thank you