Can Entrepreneurial Activity be Taught? Quasi-Experimental Evidence from Central America

CID Faculty Working Paper No. 153

Bailey Klinger and Matthias Sch√ľndeln
December 2007

Abstract

We study the effect of entrepreneurial training on enterprise outcomes, in particular whether business training for (potential) entrepreneurs of small- and medium scale enterprises can lead to an increase in the number of business start-ups or an expansion in the size of existing businesses. We study this question by analyzing the results of business training programs that an NGO held in Central America between 2002 and 2005. To deal with endogenous selection into the training program, we exploit the fact that a fixed number of applicants are taken into the training program based on a pre-training score, which creates a discontinuity around which we can compare accepted and rejected applicants and estimate the effect of training with a regression-discontinuity design. We find that receiving business training significantly increases the probability that an applicant to the workshop starts a business or expands an existing business. Thus, entrepreneurial activity such as starting and expanding businesses can be fostered by training. Exploiting the fact that in the last stage the most successful participants of the program receive substantial monetary prizes (between US$ 6,000 and 15,000) we can also provide some experimental evidence that suggests the presence of financial constraints. Finally, we investigate gender differences, and find that females experience a much larger increase in the probability of starting a business if they win the monetary prize than men, suggesting financial constraints may be significantly larger for female entrepreneurs.

Keywords: entrepreneurship, business start-up, business training, human capital, financing constraints

JEL subject codes: L26, D21, J24, I21, O16