On the Determinants of Entrepreneurial Activity: Individual Characteristics, Economic Environment, and Social Norms

This paper reviews the literature on the determinants of entrepreneurial activity and investigates to what extent differences in the population, business environment and cultural values contribute to explaining differences in entrepreneurial activity across Swedish municipalities. Individual characteristics and business environment are the most important factors in explaining entrepreneurial choice. However, we find that cultural values and, most likely, social norms also matter. The data suggest that individuals are more likely to become entrepreneurs where there are more entrepreneurs, even if entrepreneurial income is lower. We explain why and to what extent this may be interpreted as evidence of social norms. ∗ Department of Finance and SITE, Stockholm School of Economics and CEPR, Sveavägen 65, Box 6501, SE113 83, Stockholm, Sweden. Email: [email protected] ✥ Department of Finance, Stockholm School of Economics and SIFR, Sveavägen 65, Box 6501, SE-113 83, Stockholm, Sweden. E-mail: [email protected]