THE ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT IN APPALACHIA: AN EMPIRICAL ANALYSIS

THE ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT IN APPALACHIA: AN EMPIRICAL ANALYSIS

Sponsoring Institution

NIFA

Project Status

TERMINATED

Funding Source

HATCH

Reporting Frequency

Annual

Accession No.

0217088

Grant No.

(N/A)

Project No.

WVA00504

Proposal No.

(N/A)

Multistate No.

(N/A)

Program Code

(N/A)

Project Start Date

Jan 1, 2009

Project End Date

Dec 31, 2011

Grant Year

(N/A)

Project Director
Gebremedhin, T. G.
304-293-4832 - 4467
tgebrem@wvu.edu

Recipient Organization
WEST VIRGINIA UNIVERSITY
PO BOX 6108
MORGANTOWN,WV 26506

Performing Department
RESOURCE MANAGEMENT

Non Technical Summary
The research findings should aid in the development of policies and programs to alleviate rural poverty by promoting more diverse rural economic development. The research may also anticipate further rural economic and social changes. State and local policy makers, researchers, development practitioners, lending institutions, extension programs, and farm organizations are potential users of the results of the proposed research. State policy makers and local leaders will gain a better understanding of what types of economic sectors and development programs are most appropriate in attracting businesses, in alleviating poverty and in influencing economic development success in the rural areas. The findings of the study will be published in the form of articles in refereed journals, agricultural experiment station research reports or bulletins, working papers in the Division of Resource Management, and presentations at professional association meetings.

Animal Health Component

80%

Research Effort Categories

Basic

10%

Applied

80%

Developmental

10%

Classification

Knowledge Area (KA)	Subject of Investigation (SOI)	Field of Science (FOS)	Percent
608	6050	3010	90%
609	6050	3010	10%

Knowledge Area
609 - Economic Theory and Methods; 608 - Community Resource Planning and Development;

Subject Of Investigation
6050 - Communities, areas, and regions;

Field Of Science
3010 - Economics;

Keywords

entrepreneurship

economic development

simultaneous equation

appalachia region

Goals / Objectives
The main objective of the study is to determine the role of entrepreneurship in economic development in the Appalachian region. Specifically, the objectives are: 1. Develop a data base of the socio-demographic and economic variables for the Appalachian region; 2. Determine the impact of entrepreneurship on regional economic growth and development in the Appalachian region. 3. Based on the research findings, develop policy alternatives for regional economic development. Clearly, entrepreneurship development in rural areas is not only feasible but vital; it can become an integral part of the rural business culture and can contribute positively to rural communities. Thus, the most significant outcome of the project is the increased ability of policy and decision makers to improve and sustain the economic prosperity of rural communities through better-targeted development programs and policies.

Project Methods
The simultaneous equation model of growth will be used to analyze the impact of entrepreneurship to regional economic growth using changes in population, employment and per capita income growth as endogenous variables. In addition to entrepreneurship, the empirical tests will include several socio-economic variables affecting economic growth. Based on previous studies, this study will adopt the use of regional economic growth models in examining the relationship between entrepreneurship and economic growth. The estimation process of the empirical models will be done in two separate periods. The growth models will be examined at different time periods to determine the relationship between entrepreneurship and economic growth over time. This estimation will investigate whether the effect of entrepreneurship to economic growth increases with time. Data on 418 counties of the Appalachian region will be used in the empirical analysis.

Progress 01/01/10 to 12/31/10

Outputs
OUTPUTS: The study presented a spatial simultaneous equations approach for evaluating the relationship between poverty and income inequality in the Appalachian Region. The Appalachian Region is regarded as a geographically isolated area, mired in poverty and income inequality. It is characterized by high unemployment, deeply rooted poverty, low human capital formation, high out-migration, and a shrinking economic base. Even though the region has made great strides in development over the past decades, the region still lags behind other areas of the nation. Understanding the relationship between economic growth and its effect on poverty and income inequality is crucial in developing development strategies. Both the spatial analysis and Gini coefficients show an inverse relationship between poverty and income inequality, as also indicated by previous studies. This suggests that a policy geared towards reducing both poverty rate and income inequality at the same time may not be effective in the Appalachian Region. The study supported previous findings that higher per capita income, education, reduced poverty. Agriculture, construction and manufacturing industries were found to help reduce poverty. The results also suggest that income inequality in the Appalachian Region may actually contribute to its economic growth and to the poverty reduction in the Region. However, a percentage of black population was found to be hindering poverty reduction and lowering income inequality. Therefore, special government programs on providing economic opportunities to the black community in the counties could help in the economic growth and in reducing both poverty and income inequality of the Region. Results also suggest for policies to encourage people to go for higher education and to develop agriculture, construction and/or the manufacturing industries in the Region. Future research should include other variables that reflect government expenditures, entrepreneurship and other institutional variables. The study could also be enhanced from the addition of a model on economic growth to get an understanding of how the three factors interact with each other. PARTICIPANTS: Not relevant to this project. TARGET AUDIENCES: Not relevant to this project. PROJECT MODIFICATIONS: Not relevant to this project.

Impacts
Reductions in personal direct taxes, and increases in government transfers and other assistance programs are the alternative tools for use by policy makers to encourage entrepreneurial business activities and close regional gaps in income disparities.

Publications

Mojica, Maribel, Tesfa G. Gebremedhin, and Peter Schaeffer, 2010. A County-Level Assessment of Entrepreneurship and Economic Development in Appalachia Using Simultaneous Equations, Journal of Developmental Entrepreneurship, World Scientific Publishing Company, Vol. 15, No. 1 (2010) 3-18.
Sudiksha Joshi and Tesfa G. Gebremdhin, 2010. A Spatial Analysis of Poverty and Income Inequality in the Appalachian Region, Regional Research Institute, Working Paper #2010-15.

Progress 01/01/09 to 12/31/11

Outputs
OUTPUTS: The main objective of this study was to estimate the relationship between self-employment and regional economic development in the rural Northeast region of the United States. To estimate the empirical model explaining the relationship between self-employment and economic development indicators (growth in population density, employment, and per capita income), a system of simultaneous equations was used. Based on the estimated results, it is evident that self-employment is positively related to rural economic development from 1993 to 2008. The positive relationship of population density growth with employment growth and per capita income growth leads to increased population density in rural counties of the region. The positive relationship between self-employment and growth in employment indicate that more employment opportunities show more self-employed population which is unexpected. Generally, more job opportunities lead to earn more income in wage/salaried jobs and discourage self-employment. The employment growth positively affects per capita income growth indicating that an increase in the number of jobs created ultimately causes an increase in per capita income. The empirical results show a negative relationship between self-employment and per capita income growth which indicates that self-employers earn less income than wage/salaried jobs. Some other factors such as survival rate of firms have positive effects on self-employment growth. Thus, from the empirical findings it is evident that self-employment plays an important role in enhancing economic development in the region. The overall conclusion of the study is that self-employment can be considered as an important tool to reduce poverty, unemployment, and to enhance economic development in the rural counties of the region. Self-employment earns income for rural residents and families and increases societal welfare in the region. PARTICIPANTS: Not relevant to this project. TARGET AUDIENCES: Not relevant to this project. PROJECT MODIFICATIONS: Not relevant to this project.

Impacts
Reductions in personal direct taxes, and increases in government transfers and other assistance programs are the alternative tools for use by policy makers to encourage entrepreneurial business activities and close regional gaps in income disparities.

Publications

Bashir, Saima and Tesfa G. Gebremdhin. An Analysis of the Relationship between New Firm Formation and Economic Development in the Northeast Region of the United States Journal of Developmental Entrepreneurship, World Scientific Publishing Company, Vol. 16, 3 (2011).
Bashir, Saima, Tesfa G. Gebremdhin and Jerald Fletcher. An Analysis of the Role of Self Employment in the Economic Development of the Rural Northeastern United States The IUP Journal of Entrepreneurship Development The Icfai University Press, Vol. 8, 3,September 2011, 23-39.

Progress 01/01/09 to 12/31/09

Outputs
OUTPUTS: The main objective of the study was to determine the relationship between entrepreneurship and economic growth in the counties of West Virginia. This was accomplished by including entrepreneurship variables constructed from proprietorship and firm birth data into endogenous growth models. The model utilized measures of economic growth as endogenous variables including population growth, employment growth, and per capita income growth estimated individually using weighted least squares (WLS) regression and simultaneously using two-stage least squares (2 SLS) estimation. Two stage least squares was used to control for possible endogeneity between the economic growth variables and their lagged values. In addition to entrepreneurship, the model included other factors that are traditionally linked to economic growth. The results of the analyses using WLS and 2SLS generally show empirical evidence regarding the positive contribution of entrepreneurial activity to economic growth. Counties with higher numbers of proprietors and business startups exhibited higher levels of population growth. Growth in proprietorship and the increase in the number of employees in businesses showed positive influences with employment growth. However, none of the entrepreneurship variables are statistically significant in determining per capita income growth. The general results suggest that higher levels of entrepreneurship are related with higher levels of economic growth in two measures of economic growth used in the study. The study indicates the importance of understanding the role of entrepreneurship in analyzing the determinants of economic growth particularly in areas that are continuously seeking for new strategies towards economic development like in West Virginia. The empirical evidence shows the need for policy makers to design the necessary programs to assist entrepreneurs by creating a business environment where barriers for startup firms are controlled and where firm growth is encouraged. The results of the study highlight the contribution of entrepreneurship towards population growth and employment growth in the state. These results provide evidence of the need for policies that will support entrepreneurial activity to retain people, to attract individuals to reside in Virginia communities, and to increase job creation. Furthermore, the result of no significant relationship between entrepreneurship and per capita income growth may imply that entrepreneurs are not earning income high enough to significantly affect per capita income growth in the state. This suggests the need for programs that will help entrepreneurs increase their income which may include training of entrepreneurs and increasing access to capital loans. As communities search for new engines of economic development, encouraging firm start ups and building stronger businesses is necessary. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Not relevant to this project.

Impacts
Reductions in personal direct taxes, and increases in government transfers and other assistance programs are the alternative tools for use by policy makers to encourage entrepreneurial business activities and close regional gaps in income disparities.

Publications

Mojica, Maribel, Tesfa Gebremedhin and Peter Schaeffer. An Empirical Analysis of the Link between Entrepreneurship and Economic Growth in West Virginia, Journal of Entrepreneurship Development, The Icfai University Press, Hyderabad, India, 2009.