Asymmetric Impact of Business Cycles on High- and Low-End Entrepreneurship Across National Contexts

Policy makers often look towards entrepreneurship during economic recovery following a downturn, yet entrepreneurship operates differently across national contexts. We examine how the business cycle ? entrepreneurial entry relationship varies across different national contexts. Specifically we investigate how this relationship changes with varying levels of economic development and government social expenditure. We theorize that context variations apply differently to “high-end” entrepreneurial entry (high-growth aspirations and opportunity-motivated) compared to “low-end” entrepreneurial entry (low-growth aspirations and necessity-motivated). We test our ideas by studying the impact of economic downturn and recovery on entrepreneurial entry across 66 countries between 2000 and 2016 – evaluating both the dot.com crash and Global Financial Crisis. Using data from the Global Entrepreneurship Monitor and World Bank, we find high-end entrepreneurial entry is pro-cyclic in developed economies, but counter-cyclic in less-developed contexts. Low-end entrepreneurial entry is consistently counter-cyclic, but government social expenditure weakens the effect. These findings suggest ways in which policies should be tailored to different economic and institutional contexts.