A Dual Path Model of Education Effects on Entrepreneurship: An Empirical Analysis

Article excerpt

ABSTRACT

Previous research has demonstrated that education helps entrepreneurs. To understand how education works in explaining entrepreneurship development, this study proposes a Dual Path Model of education effects. To test this model, a sample of entrepreneurs is divided into a higher-education group and a lower-education group and the two groups are compared on various mediating variables. The higher-education group earns more and scores significantly higher on business knowledge. A comparison of business related goals and attitudes finds no differences between the two groups. On measures of confidence and self-concept, the results are mixed, leading to an alternative explanation of this route.

INTRODUCTION

Various aspects of education's role in the area of entrepreneurship have been researched. The case has been made that a higher level of education leads to a higher success rate of new venture creation and growth (see Robinson and Sexton (1994) for a review). Policy formulation in entrepreneurship education is, to a large extent, dependent on conclusions from research as a basis for justifying expenditures for education or for altering programs to make them more productive. One of the goals of research in the area of entrepreneurship education is to establish a direct link between education and entrepreneurship development.

While a multitude of macro-level analyses have shown that education level is directly related to a higher probability of entrepreneurship initiation and a higher longevity of the business, literature has been silent on the question of how the general level of education actually helps business owners and entrepreneurs. Specifically, studies are needed to determine what types or elements of education contribute most to entrepreneurial success.

To begin to fill this gap in the literature, this study examines three possible avenues of educational influence as plausible mediating variables: (a) through business knowledge change, (b) through attitude change, and (c) through self-confidence change. The significance of the mediating role of these three variables is empirically tested using a survey of small business owners.

PREVIOUS RESEARCH ON EDUCATION'S IMPACT ON ENTREPRENEURSHIP

Most of the previous research on the impact of education on entrepreneurs has focused on earnings as a possible function of education level. Numerous studies have shown that the education levels of the self-employed exceed those of wage and salary workers. Most studies use self-employment as interchangeable with business ownership and entrepreneurship (Boyd, 1990; Bearse, 1985; Borjas, 1985). However, depending upon the mode of action that one supposes education to have on entrepreneurship, it is possible to see both positive and negative impacts of education on levels of entrepreneurship. In fact, the literature offers two alternative theories of education's impact on entrepreneurship development.

The theory of liquidity constraint posits that individuals with a lower stock of human capital, including education, are less able to make the move to entrepreneur or business owner. Proponents of this approach include Evans and Jovanovic (1989) and Brush (1992). Others who have found evidence of this effect include Light and Rosenstein (1995) and Evans and Leighton (1987). Bates (1990) studied the impact that increased levels of education had on business performance and concluded that increased education correlates positively with increased business survival rates.

An alternative approach is the theory of the disadvantaged worker, which holds that individuals who face discrimination or who, due to economic conditions, have limited employment opportunities, turn to entrepreneurship. A logical extension of this theory is that increased education will offer these groups alternatives outside of entrepreneurship. Light and Rosenstein (1995), Min (1984), and Evans and Leighton (1987) also provide evidence of this relationship. …