An Empirical Assessment of Entreneurial Behavior: The Case of Italy

1 Introduction

Traditionally, Italy's productive structure has been characterised by the existence of a very large number of small firms. According to the last Italian census, for example, about 95% of all firms in the country employ less than ten people each for a total of 6.5 million workers (ISTAT, 2002). Together, small firms absorb 47% of the Italian labour force, more than twice the European average for firms of similar size (ISTAT, 2002). Also, while in recent years Italy's public sector and large firms (more than 500 employees) have undergone major restructuring and reduced their labour force, smaller firms have increased their share of employment (Banca d'Italia, 1999).

In addition to absorbing a large portion of the labour force, Italian small firms tend to be more productive than larger ones reporting gross profit margins 8-27% higher than the average across all firms (Banca d'Italia, 1999). Finally, in 2000, a large cross-country study of entrepreneurial behaviour involving 21 countries has shown that in Italy, 5.7% of all adults 18-64 years of age are actively trying to start a business. Figure 1 shows that this placed Italy ahead of any other European country in the study except Norway.

Figure 1 Total entrepreneurial activity prevalence rate

Source: Reynolds et al. (2000, p.10).

Although major improvements have been achieved toward the socio-economic integration of the country, significant differences still exist in Italy and clearly affect the environment faced by existing and nascent entrepreneurs. For example, considering a synthetic index of socio-economic development, and given a national average of 100, the regions in the Center and North of the country show an average index of 118.6, whereas the South of the country plus the Islands show an average index of 67.5 (SIPI, 1999).

The geographical distribution of small firms in Italy is also characterised by the existence of many industrial districts. In Italy there exist about 200 of them; 125 in the North-Eastand Center of the country, 59 in the North-West and 15 in the South and the Islands. Based on this and other evidence, Italian entrepreneurship is usually associated with the Northern part of the country. While general agreement among scholars and substantial empirical evidence exist on Italy's strong entrepreneurial tradition, it is also customarily believed that the large majority of entrepreneurial firms are located in the Northern part

of the country. Although it is true that most old and well established small firms are located in the North, recent years have seen an increasing number of small ventures being initiated by younger Italians in the South of the country.

For many years, scholars from several disciplines have tried to understand why some individuals start new businesses (Delmar and Davidsson, 2000). Some researchers have focused on personal traits of nascent entrepreneurs, assuming individuals pursuing a career as 'self-employed' to possess a different psychological make-up than those who prefer working for existing organisations (Begley and Boyd, 1987). Others have examined the characteristics external to the individual, such as economic and social variables. These studies have identified financial constraints and conditions in the labour market as the most relevant determinants of employment status choice (Acs and Audretsch, 1989; Katz, 1992). A broad literature regarding the sources and development of entrepreneurship in industrialised nations, particularly in high-tech sectors, is also available. This literature (Mussati, 1990; Ronstadt, 1984; Testa, 1992) has pointed out

factors which affect the creation and development of a new firm, once again distinguishing between individual and environmental variables. Individual factors are shown to be mainly related to founders' motivations and competence; among them are age, gender, education, previous work experience, and alertness to unexploited opportunities. Environmental factors are shown to depend mainly on regional economic conditions and, as a result, on location.

Using an original data set collected in Italy during spring 2001, this paper studies what variables influence entrepreneurial behaviour in Italy and how, if at all, such behaviour represents a change in the entrepreneurial landscape of the country. The data used in this paper allow the estimation of models incorporating both individual and environmental factors. Thus, they are very well suited for the study of entrepreneurial decisions and for understanding the interdependence between personal characteristics and

local incentives with respect to these decisions. Within the context of the existing literature, the contribution of the paper is twofold. First, the paper provides original evidence on what variables matter for entrepreneurial decisions. Second, the paper presents new evidence about entrepreneurial behaviour in Italy and provides some generalisations of the results.

2 Literature review

A number of attempts have been made to construct comprehensive theoretical models of entrepreneurial behaviour (Bhave, 1994; Gartner, 1985; Herron and Robinson, 1993). In examining the causes and motivations of entrepreneurship, the literature has shown the web of motivational factors to be very complex. For example, the opportunity to seek financial and personal rewards such as independence and freedom has been shown to have some impact on entrepreneurial decisions (Burch, 1986). Psychological characteristics such as commitment, perseverance, and need for achievement have also

often been associated with entrepreneurial motivation (Kuratko and Hodgetts, 1995), as well as with the level of aspiration when starting a new venture (Herron and Sapienza, 1992).

While the literature indicates a wide variety of possible motivational factors, only a few elements have emerged consistently as being significant throughout writings in various disciplines and economics in particular. Specifically, recent empirical studies have shown that age, gender, education, previous entrepreneurial experience, opportunities perception, and location all have a systematic and significant

effect on entrepreneurial decisions (Arenius and Minniti, forthcoming; Blanchflower, 2004; Reynolds et al., 2004). These findings are consistent with literature indicating that the decision to start a new business depends on both individual and environmental factors (Mussati, 1990; Ronstadt, 1984; Testa, 1992).

It is a well known empirical fact that self-employment tends to be a young men's game. Levesque and Minniti (forthcoming) have shown the existence of an inverted

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