Regional integration and entrepreneurship: evidence from European Union

Publication Date09 July 2018
Date09 July 2018
AuthorDanko Tarabar
SubjectStrategy,Entrepreneurship,Business climate/policy
Regional integration and
entrepreneurship: evidence from
European Union
Danko Tarabar
Winthrop University, Rock Hill, South Carolina, USA
Purpose The purpose of this paper is to empirically uncover the relationship between economic integration
and levels of entrepreneurial activity across 24 EU countries between 2004 and 2012. The deepening of EU
integration corresponds to increases in the size and competitiveness of domestic markets as member states
reorient economic activity toward the larger, competitive single market. Spillovers of both economic and
political dimensions of integration in the common market on micro firm and self-employment are considered.
The paper contributes to the understanding of the hypothesized relationship between globalization and the
rise of entrepreneurial economy.
Design/methodology/approach The paper uses fixed effects linear regression models to estimate the
marginal effects of economic integration on entrepreneurial activity. Several dependent variables and controls
for social, economics, and institutional context are used to confirm the robustness of the results.
Findings The paper finds that increased economic activity of member countries within the EU common
market, as well as institutional compliance and integration in the European Monetary Union and Schengen
Agreement are positively and significantly associated with the rise of entrepreneurship. Notably, it is found
that a standard deviation increase in economic and political integration is associated with, respectively,
16 and 7.2 percent increase in micro firm density. Some preliminary evidence on the quality of the arising
entrepreneurial activity are also given.
Originality/value The paper takes stock of existing descriptive and theoretical literature on global
economic integration and entrepreneurship to uncover, for the first time, the empirical relationship between
entrepreneurship and levels of economic and political integration within the EU bloc.
Keywords European Union, Entrepreneurship, Economic integration, Political integration
Paper type Research paper
1. Introduction
Recent years have witnessed a surge in scholarly debates on the causes and consequences
of EU integration. The narrative strand of this literature focuses on the past and future of
EUs federalism, as well as political economy of European integration (e.g. Spolaore, 2015;
Wyplosz, 2015; Börzel and Hosli, 2003). Empirical studies on the topic emerged
more recently with the availability of quantifiable data on the scope and depth of
European integration. This burgeoning literature has investigated a wide range of effects
of EU membership, from economic growth and convergence to inequality and institutional
reform (see e.g. König, 2015; Mann, 2015; Campos et al., 2014; Crespo Cuaresma et al., 2008;
Kutan and Yigit, 2007; Badinger, 2005; Busemeyer and Tober, 2015; Ugur, 2013;
Hall et al., 2011). This paper contributes to this body of work by testing the linkage
between EU integration and entrepreneurial activity in 24 EU member countries in the
2004-2012 period.
Following Klapper et al. (2010), entrepreneurship is defined as the activities of an
individual or a group aimed at initiating economic activities in the formal sector under a
legal form of business(p. 131). To gauge entrepreneurial activity across countries and over
time in a consistent manner and as broadly as possible, I use three different measures of
micro firm (one to nine employees) formation, as well as the rate of self-employment in the
empirical analysis. Taken together, these variables represent an important barometer of
overall levels of entrepreneurship, which has been recognized as essential for continued
dynamism, competition, and innovation within an economy (Klapper et al., 2006, 2010).
Journal of Entrepreneurship and
Public Policy
Vol. 7 No. 2, 2018
pp. 117-134
© Emerald PublishingLimited
DOI 10.1108/JEPP-D-18-00003
Received 15 January 2018
Revised 11 March 2018
Accepted 12 March 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
integration and
In that regard, and perhaps unsurprisingly, promotion of entrepreneurship has become one
of the foremost policy goals across the world and in the EU itself.
Established at the Treaty of Rome in 1957 as a tariff-free zone, the EU today resembles a
loose federation whose de jure sovereign member states share common foreign, trade,
monetary, and certain domestic policies. Citizens of EU countries are free to cross national
borders and work anywhere within the territory of the union without facing discrimination.
Goods, services, and capital flow freely throughout the EUs Single Market. Member
countries benefit from structural and cohesion funds paid into the common EU Budget.
The European Parliament sets EU-wide legislation while the European Court of Justice (ECJ)
adjudicates conflicts and ensures memberscompliance with EU regulation.
Despite EUs prominence in promoting peace and prosperity among its members, there
have been few attempts to quantify the actual extent of integration within EU and similar
blocs. In this study, I use the recently developed EU Index (König and Ohr, 2013) that
measures the extent of economic activity and institutional compliance of each member
country with the EUs common market. Higher values of the integration indices imply
greater economic and institutional proximity with the common market relative to and at the
expense of the rest of the world. The reorientation of member countrieseconomies toward
the common market effectively expands the size of the domestic market, facilitates access to
labor, capital, and new technologies, and promotes economic growth in member countries
(König, 2015).
Did deepening of intra-EU economic activity affect entrepreneurship in member states?
The question appears salient, as entrepreneurial activity may act as one conduit through
which EU integration increases living standards in member states. On the one hand, deeper
EU integration entails greater competition and macroeconomic volatility that pressure
entrepreneurs to increase efficiency or risk bankruptcy. Along a similar vein, Melitz (2003)
formally models a dynamic industry with heterogeneous firms, concluding that opening up
to trade forces low productivity firms to exit. On the other hand, a positive and significant
association between EU integration and entrepreneurship would be indicative of positive
externalities as well as expanded opportunities for specialization for entrepreneurial
individuals stemming from EU membership.
Evidence from reduced form regressions indicates that entrepreneurship, proxied by
micro-firm density and self-employment rates, increases in the levels of EU economic and
political dimensions of common market integration. This finding suggests that
entrepreneurial learning and opportunities a rise as member states become more
economically and institutionally integrated with the EU, resulting in faster start-up
formation and higher rates of self-employment and business ownership. Existing literature
points to potential pull(opportunity) factor of integration that influence entrepreneurial
individuals to make the occupational choice to self-employment. In that respect, this paper
provides some preliminary evidence that encouraging entrepreneurship through deepened
integration with the EU common market can be an important conduit for promoting
employment and economic growth within countries.
The remainder of the paper proceeds as follows. Section 2 reviews the role of
entrepreneurship in economic development, its relevance to the EU, and subsequently
discusses the hypothesized linkages between economic integration across countries and the
rise of the entrepreneurial economy. Section 3 describes data and methodology, and
Section 4 presents empirical results. Section 5 offers some concluding remarks.
2. Background and literature review
2.1 Entrepreneurship in the European Union
Entrepreneurship is widely recognized as a key ingredient of economic progress (e.g. Audrets ch,
Carree, Van Stel and Thurik, 2002; Audretsch, Thurik, Verheul and Wennekers, 2002).

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