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Citation Information

Type Working Paper
Title The origins of self-employment
Publication (Day/Month/Year) 2007
URL http://siteresources.worldbank.org/INTFR/Resources/BosniaFeb07Klapperetal.pdf
We examine the factors affecting the transition to self-employment in Bosnia andHerzegovina, using a panel household survey for the years 2001-2004. The studyrepresents a unique case in that in the early period of the panel (2000-2001) the countrychanged its legal framework concerning labor regulation and the business environment,with the primary aim to promote labor market flexibility and to encourage entrepreneurialactivity, making it particularly interesting to examine entrepreneurship in the newenvironment. The data allows us to directly identify individuals that switched to self-employment during the sample period and the viability of this transition, in terms ofbusiness survival for more than one year. Our results suggest an important role forfinancing constraints. Specifically, wealthier households are more likely to becomeentrepreneurs and survive in self-employment, and having an existing bank relationshipincreases the chances of survival for the new entrepreneur. In contrast, we find thatoverseas – and in some cases domestic – remittances significantly decrease the likelihood of becoming an entrepreneur. Interestingly, NGO and government supported programsthat provide grants and transfers to promote entrepreneurship seem to have worked notonly in promoting entrepreneurship but also its success, filling an important financing gapin the absence of more developed formal financial institutions. Finally, people workingin the informal sector are more likely to transition to becoming entrepreneurs andsignificantly more likely to survive

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