Introduction
Regardless of the context, all human action is ultimately the result of both motivational and cognitive factors (Locke, 2000; Shane et al., 2003). Individuals are motivated to engage in entrepreneurial endeavors driven mainly by necessity or opportunity (Block and Wagner, 2010;
Lippmann et al., 2005; Reynolds et al., 2002; Verheul et al., 2010), meaning that, for example, individuals pursue entrepreneurship primarily due to survival needs or because they identify business opportunities that satisfy their need for achievement. Extant literature often argues that opportunity-based entrepreneurship is more likely to involve a new product, service, or underserved market need and is usually preferred over necessity entrepreneurship by those individuals with relatively higher levels of human and financial capital (Block and Wagner,
2010; Lippmann et al., 2005; Reynolds et al., 2002; Verheul et al., 2010). Concurrently, opportunity entrepreneurship is expected to have a greater potential to foster productivity levels
(Block and Wagner, 2010; Wennekers et al., 2005; Wong et al., 2005) by contributing to the technological shocks that neoclassical economists identify as the key drivers of economic growth
(Kydland and Prescott, 1982). Although necessity entrepreneurship can potentially contribute to growth too, its economic impact is more likely to be redistributive (Lippmann et al., 2005).
The motivation to pursue and engage in entrepreneurship is expected to be influenced by the surrounding socioeconomic conditions, comprising a vast array of contextual factors that may buffer or promote entrepreneurial intentions, motivations, and actions by individuals in a given country (Carsrud and Brannback, 2011; Lippmann et al., 2005; Verheul et al., 2010). Here, we provide a novel empirical study of the influence of economic inequality on the likelihood of entry into different forms of entrepreneurship, and attempt to unravel the mechanisms through which inequality may impact the role of individual attributes on potential entrepreneurial behaviors. In this regard, we address the following inquiry: countries with greater economic inequality usually have higher rates of entrepreneurial activity (Lippmann et al., 2005:11), but to what extent does inequality drive necessity and opportunity-based entrepreneurship differently among individuals with varying human and financial capital?
To answer this question we employ multilevel modeling techniques on a dataset of national and individual-level variables (119,810 observations), while paying specific attention to the role of national income inequality (proxy for economic inequality) and its moderating effect on the relationship between an individual’s level of educational attainment (proxy for individual’s human capital) as well as household income (proxy for individual’s financial capital) on the likelihood of individuals engaging in necessity and opportunity based entrepreneurship. Our cross-country analysis includes 31 countries (selected based on data availability) during the 2001 to 2008 period and comprises national data on income inequality
(Gini index) from the World Development Indicators dataset (WorldBank, 2012) and individual data on several attributes of local entrepreneurs gathered from the Global Entrepreneurship
Monitor (GEM) dataset (Reynolds et al., 2005).
This study provides statistical support to the view of others on the relationship between inequality and entrepreneurship (Lippmann et al., 2005; Reynolds et al., 2002; Stiglitz, 2012), but above all it contributes to extant literature by providing novel insights into the mechanisms through which inequality regulates the role of human and financial capital on types of entrepreneurial entry. We find evidence that as inequality increases, financial and human capital endowments become weaker deterrents of entry into necessity entrepreneurship, whereas for the case of entry into opportunity entrepreneurship, we find statistical support for the augmented relevance of financial capital.