Are Wealthy Regions Also Entrepreneurial? The Case of Indonesia

Abstraksi

The relationship between economic development and entrepreneurship is complex and dynamic especially when considered at the regional level. Entrepreneurship can emerge in both wealthy and poorer regions as triggered either by necessity or opportunity factors. Motivated by the lack of studies on this topic in particularly developing countries, this study performs an analysis on Indonesian data to identify the regional patterns of entrepreneurial activity and to test whether wealthy regions are more entrepreneurial than the second ones. In addition, it also examines how regional conditions affect different type of businesses, formal and informal firms. This research employs three types of data which are firm level data, regional level data and spatial data. The unit of analysis is the third-tier regions that are municipalities and regencies, therefore the first type of data is aggregated to the regional level. The study employs two tools of analysis, including mapping entrepreneurial activities and regression analysis. In doing so, the analysis was performed in three steps that are mapping entrepreneural regions; regression analysis using Ordinary Least Square (OLS); and regression analysis using spatial lag and spatial error model The results of spatial regression analysis indicate that wealthy regions are more entrepreneurial with regard to informal firm but not for formal firm. The supply side analysis confirms that being unemployed stimulate individuals to become entrepreneurs that are necessity-based entrepreneurship. Meanwhile, the demand side analysis confirms that the size of market demand positively influence entrepreneurship that is opportunity-based entrepreneurship.