Volume 44, Number 174,
July-September 2013
Manufacturing Entrepreneurship
and Development in the Mexican States
Martín Ramírez Urquidy, Manuel Bernal and Roberto Fuentes
Econometric Results and Discussion ( ...continuation )

According to the statistics of equation 3, especially the parameter associated with the entrepreneurial indicator βE, changes in the business structure for the categories 0-2, 3-10 and more than 10 were not statistically significant. In other words, they did not affect the level of average development as measured by the ic. The same was true for the parameter relating development (ic) with entrepreneurial capacity (ice). The results were statistically insignificant, suggesting that development is a more complex phenomenon that results from the confluence of a greater number of economic, social and institutional forces, besides entrepreneurial and business factors. This will be useful to know in shaping public policy.

The econometric results indicate that level of development impacts the business structure and entrepreneurial capacities. These results can be used to explain concrete scenarios in the business life of the states. On the one hand, in less developed states, and also in the more developed states but to a lesser extent, entrepreneurship is consistent with a low level of education and business skills, low investment, rudimentary and traditional technology, low capitalization and technology. That is why low levels of development as measured by the ic are correlated with this type of entrepreneurship, and see lower levels of larger enterprises. On the other hand, progress towards strong development brings with it larger-scale entrepreneurship, involving more educated individuals with solid technical and business training, motivated by the opportunities they see in broader local markets. This type of entrepreneurship is defined by earning income higher than what individuals would earn in applying their skills as an employee. This type of entrepreneurship involves higher levels of investment and uses employees working under some type of contract. This explains why the proportion of this type of entrepreneurship is higher in local economies more developed in the area of the ic.

The above results are consistent with the recession push and Schumpeterian hypotheses, in the sense that as states develop, self-employment falls and larger-scale entrepreneurship increases. The results of these theories would suggest that the proliferation of self-employment is an individual response to under-developed local economies and labor markets (Georgellis et al., 2005), or to instability, low salaries and frequent and persistent unemployment, all of which are conditions consistent with depressed economies (Evans and Leighton, 1989). In general, depressed labor markets, as well as poor economic dynamics, reduce the opportunity cost of opening a business, which increases the propensity to become a business owner, in turn increasing the incidence of self-employment, as proposed by Schuetze (2000). That is why in the econometric model, the ic negatively explains the proportion of this type of business, suggesting that as development advances, self-employment tends to fall, while when development is lower, it tends to rise.

A Schumpeterian perspective is also useful in interpreting these econometric results. According to Schumpeterian theory, entrepreneurship among small enterprises is associated with positive growth dynamics and responds to a market opportunity for those that are most able to invest in the business sector (Stel, Thurik, Verheul and Baljeu, 2007). This explains why, as ic expands, there are business opportunities and benevolent institutional factors that translate into larger-scale entrepreneurship on behalf of the most able. This brings along job opportunities and salary increases, elevating the opportunity cost of being an entrepreneur. Companies that begin in the midst of this process tend to be larger, with more trained leaders and higher salaries, features characteristic of more developed regions.

CONCLUSIONS AND IMPLICATIONS FOR PUBLIC POLICY

This work sought to empirically establish whether there was some entrepreneurial development pattern linked to the growth level of Mexican states. The results of this study confirm the hypothesis: economic progress in the states affects their business structures and entrepreneurial capacity. Higher levels of development therefore correspond to a business structure with relatively larger small enterprises of scale, compatible with better business capacities and a decrease in self-employment entrepreneurship. However, this work did not find inverse causality, whereby the business structure and its capacities would influence development, which suggests that development is rather the product of a larger number of economic, social and institutional forces. The results also indicate that differences in business and sectoral structures among the states could be linked to levels of competitiveness, especially going by Porter’s logic, as the states have rather varied business structures and heterogeneous performance. Some states have consolidated development and competitiveness, some are advancing and others are lagging (Ocegueda et al., 2009).

The results of this study are therefore applicable to understand the interaction between development and the business and entrepreneurial structures of the Mexican states. This research will also assist in guiding local public policies regarding entrepreneurship. These policies should consider actions that promote advancing the competitiveness that is interlinked with development. In this sense, competitiveness indices, which represent a broad range of indicators, provide an important base for public policy. Some will be novel and others will need further reinforcement. This is also the case for actions undertaken to improve the efficiency of the legal system. Not only must the justice department provide faster sentencing, but there must also be improvements in property, mercantile and corporate law, as well as regulation and contract coercion and continued efforts to combat corruption. More importantly, actions must be taken to invest in human capital at all levels, with a focus on increasing average education, improving educational quality and promoting broader coverage of secondary and higher education, as well as health coverage and the expansion and better orientation of physical and technological infrastructure. Some aspects are more clearly associated with entrepreneurship, where the role of the government will be more important in strengthening the business sector. These aspects include improving regulations and requirements for opening businesses, strengthening the processing and management of business procedures, making tax collection more efficient, which would lead to reduced transaction costs when companies pay taxes, greater efficiency and allocating public spending and government procurement towards reinforcing local business structures. In terms of entrepreneurship, aspects related to human capital and the ic would include establishing technical assistance and business training programs that might improve business practices among the less fortunate groups of entrepreneurs, linking higher education to productive sectors and coordinating educational, science, technology and industrial policy (Mungaray, 2011). These items must constitute the efforts to promote innovation, entrepreneurship and productive improvements.

In summary, the actions described above are instances where improving public and institutional policies could impact development indicators, and as a result, influence entrepreneurial and business structures in the Mexican states, as the results of this work show.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 192, January-March is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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