Measuring entrepreneurship determinants: empirical analysis

Originality / scientific novelty.The article proposes a method of assessing the determinants of entrepreneurial activity through the use of the canonical correlation method. This method allows us to investigate the relationship between two sets of variables and is a generalized version of pairwise correlation, as opposed to factor analysis, which is used to establish relationships within one set of variables. entrepreneurship economy agriculture

Practical value / implications.Presented study aims to extend the empirical knowledge on the measurement of entrepreneurship at the country level and its determinants. In assessing the determinants of the entrepreneurial environment, the main causes that lead to incomplete utilization of entrepreneurial potential remain unaccounted for. Particularly practical meaning may have a thorough analysis of the determinants of entrepreneurial activity in different countries. Modern European integration aspirations of Ukraine should be provided with real socioeconomic transformations in which the development of entrepreneurial activity is key. The beginning of an effective process of forming an efficient strategic approach to creating a favourable entrepreneurial environment for every country is to study the existing experience of other countries. For Ukraine, in particular, this is the experience of the EU countries.

Key words: entrepreneurship determinants, canonical correlation analysis, systematic approach, correlation analysis.

Introduction and review of literature

The formation of efficient mechanisms of economic development should be based on a clear understanding of the interconnections and interdependence of the system of functioning of economic entities. For this very reason most modern theories of transformation are based on a systematic approach to change. Thus, the core of the national economy is entrepreneurship, the development of which is a consistent component of all other processes of economics. In this context, the connection between economic growth and entrepreneurship that such scholars as J. E. Prieger, C. Bampoky, L. R. Blanco, A. Liu (2016), D. Urbano, S. Aparicio (2016), P. Gartia-Villaverde, J. Rodrigo- Alarcon, G. Parra-Requena, M. J. Ruiz-Ortega (2018) have proved in their works is clearly evident. According to systems theory, there is also a feedback, according to which the relations that have developed in the national economy determine the level of entrepreneurship development.

Entrepreneurship as a driving force of the national economy is studied by many scientists at different levels (micro-, meso- and macro-) and using different methods (empirical description, development of strategic directions, factor analysis, study of determinants of entrepreneurial activity between different temporal and spatial objects of research etc.). Therefore, there is no doubt that systematic approach to the study of entrepreneurship needs to be used as a basic one.

According to the systematic approach, entrepreneurial activity relies on the system of determinants that define its development (Aparicioet al., 2015; Fuentelsazet al., 2015; Boudreaux et al., 2019). Determinants of entrepreneurship are seen as a system of conditions that hierarchically builds the effect of institutions and organizations of the economic mechanism to shape the entrepreneurial environment. An empirical method of studying such determinants was considered by O. Dvoulety (2018). At the national level, a methodological approach to the study of determinants was proposed L. Jiangyong and T. Zhigang (2010).

Therefore, in the current context, it is important to investigate not the state but the dynamics of changes in economic processes in interconnection and interaction and their impact on entrepreneurial activity. The most popular methodologies are those based on systematic approach using economic and mathematical modeling methods. One such methodical tool is the canonical correlation method.

The method of canonical correlation analysis was first published by the American economist H. Hotelling (1936). The application of this type of analysis to the determinants of entrepreneurial activity was made in the paper of R. Volchek (2012). According to C. Marcotte (2013), Z. Acset al. (2014), J. Iversenet al. (2010) and E. Congregado (2008), assessment of entrepreneurial activity at country and interstate levels is still an underrepresented area of research. Therefore, the research, which built a system of determinants of entrepreneurial activity is relevant and actual.

Presented study aims to extend the empirical knowledge on the measurement of entrepreneurial determinants at the country level.

The study of the business environment determinants and the main reasons that lead to incomplete use of entrepreneurial potential is a necessary condition for economic growth and the formation of a favorable environment for entrepreneurial development. In the conditions of globalization and economic systems integration the implementation of approaches of the European countries to formation of entrepreneurial development determinants is especially important for Ukraine. Under conditions of effectiveness, such factors should become a benchmark for the strategic priorities determining of the economic relations development in Ukraine. Therefore, a sound analysis method of foreign experience is a key factor in shaping the entrepreneurial activity determinants in the country.

The purpose of the article is offering a well-founded approach to the formation of a methodology for estimating the determinants of entrepreneurial activity; to empirically validate these relations and the hypothesis that different countries can choose a system of determinants that can be driven in the desired direction to achieve an increase in the entrepreneurial activity indicators (to empirically support a hypothesis, that entrepreneurial activity is influenced by a system of determinants that determine the results of the national economy).

Results and discussion

Summarizing all of the above, we offer the following sequence of assessing the impact of determinants on entrepreneurship.

1. Develop a methodologic approach for assessing the determinants of entrepreneurial activity.

2. Select the most important determinants that most accurately describe entrepreneurial activity among a large number of indicators. In our study, there are two groups:

a) entrepreneurship performance indicators (Gross Domestic Product at actual prices per capita; Volume of output at market prices; Global Competitiveness Index);

b) factor indicators of entrepreneurial activity (total amount of innovation expenditures in the country (Х1); share capital per capita (Х2); export (Х3); import (Х4); capital investment (Х5); number of employed population (Х6); number of unemployed population (Х7); average wage (Х8); volume of sold products, goods, services by enterprises (Х9); population incomes (X10); disposable income per capita (Х11); the number of economically active population (Х12); the need of employers for workers (Х13); real disposable income of the population (Х14); expenditures for the personnel of the enterprise (Х15)).

3. To form a sample of countries for analysis (Ukraine, Poland, Lithuania, Romania, Germany) and explore the different features of the factors of entrepreneurial development in them.

In accordance the purpose of the article and the sequence of assessing the impact of determinants on entrepreneurship, the authors propose the following hypotheses:

Hypothesis 1. To analyze the entrepreneurial environment, a systematic approach must be applied whereby all the determinants of the entrepreneurial environment are interrelated and influence one another.

Hypothesis 2. The canonical correlation method makes possible to determine system factors of entrepreneurial activity and confirms the fact that each country has its own determinants system.

Hypothesis 3. The results of entrepreneurial activity that meet the principles of sustainable development are the most effective, in particular the determinant of human development. The level of human resources development reflects the state of economic and political relations, which determine the competitive position of entrepreneurship and its efficiency.

Measuring determinants of entrepreneurial activity: research methodology. In order to determine the effective mechanisms of development of one of the main driving forces of the economy - entrepreneurship, it is necessary to determine the objective regular relationship and interdependence of external conditions of its functioning as a complex dynamic system.

According to D. Urbano (2016), the determinants of entrepreneurial activity reflect both internal and external causal relationships between the genesis and evolution of the entrepreneurial phenomenon.

In practice, defining the main determinants of entrepreneurial activity is important in the aspect of forming the research methodology, and, most importantly, in understanding the essence of entrepreneurship, in order to form effective mechanisms for its development and taking into account competitive advantages. Determinant structuring can serve as a basis for a country's entrepreneurship development program and for an individual business entity.

Thus, the determinant of entrepreneurial activity is a complex concept that characterizes the factor of the entrepreneurial environment, which, on the one hand, defines the form and type of relations that have developed in economic activity, and on the other hand, is their component.

Identification and monitoring of the determinants of entrepreneurial activity provide the analysis tools, but, as a rule, it is carried out using the apparatus of economic and mathematical modelling. Generally, regression analysis is used to construct multifactorial models of determinant influence on entrepreneurial activity. The results of these methods of analysis reflect the development level of the country's economic relations and the influence of factors on an indicator that reflects the purpose of the activity. However, it is important for the formation of effective mechanisms for the development of the national economy to assess the impact of entrepreneurial activity on the set of indicators that reflect the quantitative and qualitative economic results. The canonical correlation method is a tool for assessment the relationships between quantitative and qualitative indicators of entrepreneurial results and the system of its determinants.

Canonical correlation is the spread of pairwise correlation to the case when there are several performance indicators Y and several factors X. This does not require the absence of correlation both in the group of performance indicators and in the group of factors. The algorithm for the canonical correlations method calculating is built in such a way that the initial variables are replaced by their linear independent combinations. The main purpose of this method is to find the maximum correlations between groups of variables. In addition, the canonical correlations method makes it possible to reduce the amount of initial data by eliminating low-impact factors. The main difference between the canonical correlations analysis and the corresponding regression model is that it takes into account the multiple relationships between business results and the factors that determine it.

Sample selection. Determinants, formed on the basis of analysis of a considerable number of indicators and indices, reflecting various aspects of entrepreneurial activity of European countries are considered in the article.

The beginning of forming process is building an effective strategic approach to creating a favorable environment for entrepreneurial development in any country is a study of existing experience in this area of the world, for Ukraine - it is, in particular, the experience of EU countries.

Germany was chosen as the benchmark in which the determinants of entrepreneurship provide the highest impact. Romania, Poland, and Lithuania have been chosen as neighboring countries that have had the same start, but have achieved different positions, whose experience is useful to us, and with whom we have close ties in doing business.

Therefore, the analysis was performed by comparing different pairs of correlation relationships. The analysis identifies two main groups of indicators: performance (reflecting entrepreneurial performance) and factor (assessing resources and indicators that affect entrepreneurial performance). The relevant indicators reflect the quantitative and qualitative aspect of a particular determinant of entrepreneurial activity. That is, we have determined to what extent a determinant defines the results of entrepreneurial activity.

For analysis and identification of factors of entrepreneurial activity statistics of Ukraine, Romania, Lithuania, Poland, Germany from 2007 to 2018 were selected. The data set from these countries used in this study consists of performance indicators and determinants of entrepreneurial activity covering the period between 2007 and 2018. Data are obtained from Eurostat (Eurostat, 2019).

It is worth characterizing the sample that is formed for the study - the selected outputs of GDP per capita and the output produced reflect the quantitative results of entrepreneurial activity in the countries, while the Global Competitiveness Index reflects their quality side. Each indicator characterizes one or the other aspect of a particular determinant of entrepreneurial activity. At the beginning of the study, the following indicators were analysed: Global Innovation Index (2019), Index of Economic Freedom (2019), Ease of doing business Index (2019), Human Development Index (2019), which did not show a significant correlation with indicators of entrepreneurial efficiency and to some extent are part of the selected indicators.

Dependent variables. The indicators we have selected are those that most fully reflect the results of entrepreneurial activity.

This is the gross domestic product at actual prices per person ( Y1), the volume of output at market prices (Y2) and the Global Competitiveness Index (Y2).

The dynamics of these indicators are shown at the Fig. 1 (GDP), Fig. 2 (volume of output at market prices), Fig. 3 (Global Competitiveness Index).

Fig. 1. GDP per capita, euro, 2007-2018

Source: data from Eurostat (2019).

Fig. 2. The volume of output at market prices, million euros, 2007-2018

Source: data from Eurostat (2019).

Fig. 3. Global Competitiveness Index, 2007-2018

Source: Global Competitiveness Report (2019).

According to Fig. 1, the highest level of GDP per capita is in Germany, with fluctuations in the index at different times also being the highest in Germany, which is well-suited to systems development theory, according to which stronger fluctuations of indicators lead to a higher level of development of the system. That is, entrepreneurship is directly related to the ability to function in the face of constant unforeseen change in the material factor influencing it.

In Fig. 2, we note that the level of output was calculated according to the Eurostat methodology (in Ukraine the method of calculating this indicator is somewhat different). The calculations of this indicator are aligned to the Eurostat methodology by the authors themselves. We are observing that in 2014 there was a sharp decline in the volume of manufactured products in Ukraine, which is connected with the emergence of the military conflict in the East of the country and annexation of Crimea.

According to the Global Competitiveness Index we can note the growth of positions of Germany, Poland and Romania. Since 2016, we have seen a decline in the Lithuanian index.

Descriptive statistics for the time series used in the analysis are summarized in Table 1.

According to Table 1, there is a significant variation of indicators, which, for one part, characterizes the level of stability and uncertainty of the functioning of the entrepreneurial environment, and the potential for the other part.

Thus, the biggest variation in GDP is in Germany and the least is in Ukraine. The biggest volume of production is in Ukraine, and the slightest fluctuations in these indicators are in Romania and Lithuania.

The average value of the Global Competitiveness Index is the highest in Germany, with a high maximum and minimum value. The lowest index is in Ukraine.

Therefore, all performance indicators are the highest (among the surveyed countries) in Germany. For this reason, we consider this country as an example of an entrepreneurial environment with the most effective determinant system.

Table 1Descriptive Statistics (Dependent variables)