Entrepreneurial Growth Aspirations: The Interplay of Human Capital, Institutions, and Crises

In the realm of entrepreneurship, the interplay between human capital, institutional frameworks, and economic crises shapes the growth aspirations of aspiring business leaders. This article delves into this intricate relationship, exploring how pro-market institutions, specific and general human capital, and crises influence the growth ambitions of entrepreneurs.

Human Capital and Entrepreneurial Activity

Scholars and policymakers widely acknowledge the positive impact of human capital on entrepreneurial activity. Human capital encompasses the knowledge, skills, and abilities possessed by individuals that contribute to their productivity and economic success. Research has consistently shown that entrepreneurs with higher levels of human capital are more likely to start and grow successful businesses.

Pro-Market Institutions and Growth Aspirations

Pro-market institutions are characterized by economic liberalization, free market principles, and limited government intervention. These institutional environments are often associated with greater economic growth and innovation. For entrepreneurs, pro-market institutions can provide a fertile ground for business growth and expansion.

Entrepreneurs with specific human capital, such as start-up or investment experience, tend to thrive in pro-market contexts. Their experience equips them with the skills and knowledge necessary to navigate the uncertainties and complexities of market competition. They are more likely to have a clear vision for their venture’s growth trajectory and possess the capabilities to execute their plans.

However, entrepreneurs with general human capital, typically acquired through higher education, may face challenges in pro-market environments. The theoretical knowledge and skills gained through formal education may not directly translate into practical business acumen. This mismatch can hinder their ability to effectively manage and grow their ventures.

Crises and Entrepreneurial Growth Aspirations

Economic crises, such as recessions or pandemics, introduce heightened uncertainty and resource scarcity. During these challenging times, entrepreneurs face disruptions to their operations, supply chains, and customer demand. Navigating these crises requires resilience, adaptability, and a keen understanding of market dynamics.

Entrepreneurs with specific human capital, particularly those with start-up experience, often demonstrate greater resilience and adaptability during crises. Their hands-on experience enables them to make informed decisions, pivot their business strategies, and identify new opportunities amidst adversity.

Entrepreneurs with general human capital may face greater challenges during crises. The theoretical knowledge gained through formal education may not provide immediate solutions to the practical problems encountered during a crisis. However, this education can still be valuable in understanding government regulations and policies implemented in response to the crisis, which can impact business operations.

Data and Methodology

To empirically investigate the interplay between pro-market institutions, human capital, and growth aspirations during crises, this study draws upon data from the Global Entrepreneurship Monitor (GEM). The GEM dataset provides a rich source of information on entrepreneurship across 93 countries from 2005 to 2020. Data on pro-market institutions is sourced from the Heritage Foundation and Fraser Institute.

The study employs regression analysis to assess the relationship between pro-market institutions, human capital, and growth aspirations. Differential effects during crises are examined by interacting pro-market institutions with crisis dummies.

Results and Implications

The analysis reveals that pro-market institutions positively correlate with growth aspirations for entrepreneurs with specific human capital. However, this relationship is negative for entrepreneurs with general human capital. During crises, the negative interaction between pro-market institutions and general human capital vanishes, while the positive interaction with specific human capital becomes more pronounced.

These findings suggest that pro-market institutions can foster the growth aspirations of entrepreneurs with specific human capital, particularly during crises. However, general human capital may not be sufficient to drive growth in pro-market contexts, especially during economic downturns.

The study’s findings have important implications for policymakers and educators. Policies should aim to increase complementarities between education and experience, particularly in pro-market institutional contexts. Education-based human capital should be aligned with real business experiences to enable entrepreneurs to scale up ventures in growth-fostering institutional frameworks.

Conclusion

This study highlights the differential impact of pro-market institutions on entrepreneurial growth aspirations based on human capital during both normal times and crises. It emphasizes the need for policies that integrate formal education with practical business experiences to support aspiring entrepreneurs in scaling their ventures in favorable institutional environments.

By recognizing the unique challenges and opportunities faced by entrepreneurs with different types of human capital, policymakers can create a more conducive ecosystem for entrepreneurial growth and innovation.