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Do different institutional frameworks

condition the influence of local fear of
failure and entrepreneurial examples
over entrepreneurial activity?
a a
Yancy Vaillant & Esteban Lafuente
a
Department of Business Economics , Universitat Autònoma de
Barcelona , Edifici B. 08193, Bellaterra, (Barcelona), Spain E-
mail:
Published online: 19 Jul 2007.
To cite this article: Yancy Vaillant & Esteban Lafuente (2007) Do different institutional frameworks
condition the influence of local fear of failure and entrepreneurial examples over entrepreneurial
activity?, Entrepreneurship & Regional Development: An International Journal, 19:4, 313-337, DOI:
10.1080/08985620701440007
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ENTREPRENEURSHIP & REGIONAL DEVELOPMENT, 19, JULY (2007), 313–337
Do different institutional frameworks condition the

influence of local fear of failure and entrepreneurial
examples over entrepreneurial activity?
YANCY VAILLANT and ESTEBAN LAFUENTE
Department of Business Economics, Universitat Autònoma de Barcelona,
Edifici B. 08193, Bellaterra (Barcelona), Spain;
e-mail: Yancy.Vaillant@uab.es
This paper analyses how different institutional frameworks condition the influence of selected
social traits: the social stigma to entrepreneurial failure and the presence of entrepreneurial role
models, over entrepreneurial activity levels in a rural area with strong industrial and
entrepreneurial history versus those that are not necessarily characterized by such a tradition.
To attain this objective we undertake a rare events logit model using a robust Spanish dataset
from 2003. The main contribution of the study indicates that there is a significant difference
between entrepreneurial activity levels in rural Catalonia as compared to rural areas in the rest
of Spain. This difference is in large part explained by the distinct impact of the observed social
traits, where the presence of entrepreneurial role models is a prominent explanatory factor
favouring entrepreneurial activity in rural (Catalonia) areas with strong industrial tradition.
The findings of the paper back the growing call for territorial specificity in the formulation and
application of entrepreneurship support measures, distinguishing between rural and urban
areas. Hence, and in accordance with the new rural paradigm, entrepreneurship promotion
should take a more holistic character and become an integral part of any rural development
plan. The paper’s results imply that fostering business creation in rural areas is more often than
not a generational process, where the search for short-term benefits can result in the mistaken
impression that in rural areas entrepreneurship support policy does not work.
Keywords: rural entrepreneurship; entrepreneurial activity; stigma towards entrepreneurial

failure; role model.
1. Problem statement
The growing awareness over the last decades of the importance of new businesses and
small and medium sized enterprises (SMEs) within economic development has led
many public administrations from all political ideologies and of all administrative
levels to develop policy favouring and stimulating the creation of new enterprises
(Rural Policy Research Institute [RUPRI] 2006).
Entrepreneurship has also become a tool for economic development in rural areas.
The EU and many Organisation for Economic Co-operation and Development
(OECD) countries have introduced over the last decade policies that uses
entrepreneurship as an essential tool for rural development.1 In Europe, the
diversification of the productive base of rural areas has become an objective of rural
development policy (European Commission 1997a). Likewise, there is increasing
demand and interest in placing new business formation as a key element within the
Entrepreneurship and Regional Development ISSN 0898–5626 print/ISSN 1464–5114 online ß 2007 Taylor & Francis
http://www.tandf.co.uk/journals
DOI: 10.1080/08985620701440007
314 YANCY VAILLANT AND ESTEBAN LAFUENTE
development and revitalization process of lagging European areas (Rosell and

Viladomiu 2002). For its part, the OECD has included entrepreneurship and
endogenous economic growth as one of the main foci of its New Rural Paradigm
(OECD 2006).
In addition, entrepreneurial activity has attracted the interest of many researchers
who have demonstrated that increased levels of entrepreneurial activity can have
positive repercussions on employment generation (Storey 1982, 1988, 1994, Birley
1985, Kirchoff and Phillips 1988, 1992, White and Reynolds 1996), on economic
growth (Sexton 1986, Dubini 1989, Storey 1994, Wennekers and Thurik 1999), and
on innovation (Drucker 1984, Pavitt et al. 1987, Acs and Audretsch 1988, Acs and
Varga 2004).
Although the specificity of rural (peripheral) entrepreneurship and its
entrepreneurs has been widely analysed (Keeble and Tyler 1995, Anderson 2000,
North et al. 2001, Macke 2002, Urbano et al. 2002, Vaillant et al. 2004, Viladomiu et al.
2004), this has rarely translated into specific rural entrepreneurship policy. Where it
does exist, too often it is simply a replication of measures found in urban areas
(Smallbone et al. 2002). A common conclusion of studies into rural entrepreneurship is
that, because of its distinctiveness, entrepreneurial activity in rural areas is possibly
disfavoured by common national support frameworks (Bryden and Hart 2005).
Further knowledge of the distinctive factors affecting entrepreneurial activity in rural
areas is essential to help improve the effectiveness of the growing number of
endogenous rural development efforts linked to better infrastructures (Jacobs 1969),
and greater volumes of demand (Krugman 1981, 1991).
Nevertheless, improvements in transport infrastructure, communication, and
information technologies have brought about an important reduction in the physical
and psychic distance separating rural and urban areas. Although much of the formal
institutional and infrastructural disadvantages in Europe and many OECD countries
have been alleviated, most rural areas have not experienced the appropriate and
consequent convergence towards the entrepreneurial activity levels found in urban
areas. Evidence is beginning to mount which would indicate that many rural areas are
‘entrepreneurial laggards’ not just because of their physical disadvantages, but also
because of the inappropriate socio-cultural traits of their informal institutional
framework making them non-conducive for effective entrepreneurial activity
(Fornahl 2003).
A recent study (OECD 2003) of the influence of entrepreneurship over local
economic development conducted by Alister Nolan for the OECD involving
thirty OECD countries concluded that stimulating entrepreneurship can provide
a cost-effective alternative to paying unemployment insurance in rural areas, but that
the direct growth effects in these areas are modest. According to the study, there are
many obstacles that hinder entrepreneurship in rural areas, influencing both the
extent and form of entrepreneurial activity and its prospects for survival. The study
concludes that social traits, such as cultural barriers, the lack of positive
entrepreneurial examples (role models), and limited networks are some of the most
important barriers that restrain rural entrepreneurship (OECD 2003). According to
the configuration of these social cultural traits, economic agents are more or less
propelled to become entrepreneurially active.
Consequently, there is a view that places doubt on the effectiveness of entrepreneur-
ship as a tool for economic development in rural areas (Neck et al. 2003, OECD 2003).
Nevertheless, this view does not appear to be consistent with the experience of rural
INFLUENCE OF SELECTED SOCIAL TRAITS 315
Catalonia. Contrary to the configurations found in the rest of Spain and most of Europe
(Regidor 2000, Tödtling and Wanzenböck 2003, Wagner and Sternberg 2004), many
parts of rural Catalonia benefit from better economic results than do urban areas of
Catalonia. The average per capita income in most of rural Catalonia is higher than that
found in urban areas. More importantly, according to the results of the Global
Entrepreneurship Monitor (GEM) (Veciana et al. 2004), the proportion of the adult
population of rural Catalonia involved in entrepreneurial activities in 2003 stood at
11.44%, more than three times greater than the proportion found in rural areas of the
rest of Spain (3.43%). Whereas rural Catalonia is more entrepreneurial than its urban
counterpart (4.28% of the adult population of urban Catalonia), rural areas in the rest
of Spain have an entrepreneurial activity level (3.43%) that is inferior to that registered
for urban areas (4.29%).
Thus, this research aims to determine the specificities of entrepreneurial activity

in rural areas with a special focus on how different institutional frameworks can
condition the influence of two social-cultural traits that the OECD (2003) and the
European Commission (2003) identify as amongst the most important for
entrepreneurship: social fear of entrepreneurial failure, and the presence of
entrepreneurial role models. The main objective is to examine the impact of the
selected social traits over entrepreneurial activity in rural versus urban areas of Spain
and then specifically compare their impact in rural Catalonia as compared to that
found for rural areas of the rest of Spain. We also want to analyse the influence of the
selected factors over the superior entrepreneurial activity levels found in rural
Catalonia.
The paper is organized as follows. Section 2 presents the theoretical framework and
the literature review. Data and research methodology are introduced in section 3.
A discussion of the results is offered in section 4. Finally, conclusions and implications
are given in section 5.
2. Theoretical framework
2.1 Institutional approach to entrepreneurship research
A growing number of academics are demonstrating that a theoretical framework

based on a socio-cultural approach may be more appropriate for the study of
entrepreneurship and SMEs than conventional economic and psychological
approaches (Granovetter 1985, North 1990, Gnyawali and Fogel 1994, Maillat
1996, Uhlaner and Thurik 2004). The main hard-core common to the theories falling
under this approach is the basic belief that the decision to create a new enterprise, and
therefore to become an entrepreneur, is conditioned by external or environmental
factors. In other words, the socio-cultural factors of the institutional framework are
what determine the levels of entrepreneurial activity in a specific time and place
(Baumol 1990).
Examples of theories that adopt a socio-cultural approach have been compiled and
described in Veciana (1999). In Veciana’s paper, the theories under this and the other
main approaches used for the study of entrepreneurship are described in much greater
detail. We will therefore not repeat this task in the present paper.
Of the theories within the socio-cultural approach, the Institutional Economic
Theory, developed mainly by Douglass North (1990), is one of the most general,
which encloses most of the specificities of the other theories falling under the same
approach. Together with the theoretical amplitude that the institutional economic
theory offers, the historical perspective and institutional embeddedness argument
which it offers are especially ideal for the objective laid out for this study, and was
therefore used as the theoretical backbone guiding our research.
However, with the exceptions of ‘Institutional Economists’ such and Veblen (1898,
1904), Commons (1934) and Mitchell (1952), institutions were largely taken for
granted by modern economists (Bryden and Hart 2005). The ‘Italian School’ on
industrial districts reintroduced the role of institutions within regional development
(Zacchia 1986, Pyke et al. 1990). They attempt to explain the rise of industrial clusters
in formerly rural or run-down industrial areas by focusing on cultural and
organizational explanations behind successful examples of regional development.
Later work by Maillat (1995), Cooke and Morgan (1998) and Storper (1998) took the
argument further by looking at the relationship between cultural traits specific to the
regional context and entrepreneurship. These new regionalists confirmed the
importance that socio-cultural factors have on regional development.
Dawe and Bryden (1999) argue that rural development depends to a large extent
on the structural and cultural make-up of the community, its history and local
leadership. They reaffirm the importance of local community as a key stimulus for
development. Similarly, Friedman (2000) defends that understanding that rural
culture is embedded in its own institutional framework of social organizations is key to
appropriate rural development strategy formulation. This institutional embeddedness
is found by Johannisson et al. (2002) to condition rural entrepreneurship through
its impact over local inter-firm networks. According to Bryden and Hart (2005),
a common thread within the regionalist literature is the importance of informal and
historical factors as key ingredients to development.
North (1981, 1990, 2005) explains using an institutional approach how there can
exist ‘radically differential’ performance of economies over long periods of time.
He follows-up his path dependency argument by describing the embedded character
of informal institutions as a result of their cultural content.
Institutional evolution is especially important for the purpose of this study since
one of the main distinctions between rural Catalonia and the rest of Spain lies in the
industrial history and entrepreneurial tradition of rural Catalonia, shared by very few
other rural areas of Spain. In his book, Understanding the Process of Economic Change,
North (2005) himself defends the institutional distinctiveness of Catalonia in his
analysis of the Kingdom of Aragon (Paı́ses Catalanes) and the Kingdom of Castilla
that joined under Ferdinand and Isabel to form the basis for the new Kingdom
of Spain. He described the institutions of the Kingdom of Aragon as
liberal, decentralized and commerce-oriented, whereas Castilla had a centralized,
bureaucratic and permanently belligerent governance system. He suggests that the
economic history of Spain would have been crucially different had its institutional
evolution been determined by Aragon instead of Castilla (North 2005).
This argument is similar to that found in Davidsson (1995) and more recently
reinforced by Pilon and De Bresson (2003) who identify local cultural ‘anchoring’
based on cultural similarities, cultural cohesiveness, and historical particularism and
heritage making certain geographical areas more conducive to entrepreneurial
activity.
Exhaustive literature reviews on the topic of institutional factors that condition
new business formation can be found in Rutherford (2001), Hodgson (2004) as well as
in Wood and Valler (2004). In addition, studies researching rural entrepreneurship
have included variables that can be considered institutional factors in their
framework. On the one hand, studies developed by Chrisman et al. (1987),
Anderson (2000), De (2001), Lerner and Haber (2001), and North et al. (2001)
have considered, following different methodologies, institutional variables in order to
analyse public sector support to entrepreneurship. As a general conclusion, these
studies highlight that public sector assistance, such as incubators and other
entrepreneurship support measures, have a positive impact over small business
creation, integration and survival. On the other hand, Birley (1985) reports a positive
relationship between social networks and business creation. To the contrary,
Johannisson (2000) states that it is very difficult to demonstrate the existence of
a relationship between business networking and entrepreneurial performance.
Regarding research more directly related to rural entrepreneurial activity Pezzini

(2001) finds that strengthening local institutions is important to promote rural
entrepreneurship. Also, Tödtling and Wanzenböck (2003) conclude that more
sophisticated support frameworks favour start-up activity comparatively more in
urban areas.
Concerning the Spanish experience, Urbano et al. (2002) remark at the importance
of institutional frameworks upon entrepreneurship. Moreover, Rosell and Viladomiu
(2002), Viladomiu et al. (2004), and Rosell et al. (2006) find that uniform support
policies in rural and urban areas lead to a sub-optimal impact on business creation
processes in rural areas.
2.2 Distinctiveness of Catalan institutional framework
The decision to concentrate our analysis and contrast the rural areas of the Spanish
autonomous community of Catalonia against rural areas in the rest of Spain has been
based on several indications that rural Catalonia has a particular institutional
framework, different from those found elsewhere in Spain. First, Catalonia has been
historically the focus of industrialization in Spain because of its diversified and strongly
open industry (Costa-i-Font and Tremosa-i-Balcells 2003). Second, Catalonia has
a distinct history that has placed it upon a different institutional evolutionary path
than the rest of Spain. This distinctiveness is commonly recognized and was
institutionalized within the Catalan Statutes of Autonomy (Spanish Code of
International Law 1979).
This has been recently reinforced within the reforms to the Catalan Statutes
of Autonomy. In fact, the first article of Catalonia’s proposed Statute of Autonomy,
which was backed by 90% of the Catalan parliament, states that ‘Catalonia is a nation
exercising self-government through its own institutions’ (Parlament De Catalunya
2005). The preamble to the mentioned document highlights the specificity of
Catalonia’s socio-institutional history. Furthermore, Ahedo (2006) and Buesa et al.
(2006) consider the Catalan distinctiveness within their evaluation of the industrial
development and innovation capacity in Spain. These authors report that Catalonia
exhibits a highly industrialized economic structure which contributes 19% of
Spain’s GDP but as much as 27% of Spain’s industrial GDP (Ahedo 2006),
being a result of the better regional and productive environment as described by
Buesa et al. (2006).
North and Thomas (1973) recognized that ‘history matters’ in economic growth,
mainly because of the path dependence of institutions. The distinctive history of
Catalonia, as compared to the rest of Spain, has set it upon its own particular
socio-institutional evolution, which may influence the propensity of Catalans towards
entrepreneurial activity in different ways to what can be found in the rest of Spain.
Consequently, Catalonia’s particular historical evolution is Catalonia’s proper
cultural specificity. Apart from the clear cultural difference of Catalonia coming from
the distinct Catalan language, commonly used by over 50% of the Catalan
population, spoken by some 74% and understood by over 95% of Catalans,
Catalonia is characterized by differential cultural traits (Busquets-i-Duran 2001).
This author reports that Catalans consider independence as the most important value
to instil in children, whereas it is obedience in the rest of Spain. Other important
values for Catalans are predisposition toward working hard, and a sense of economics
and saving, which is not the case in the rest of Spain. Contrary to in Catalonia,
religious values and faith stand out as important in the rest of Spain. The same study
also reported differences in the religious, leisure and social practices of Catalans as
compared to other Spaniards.
The distinctive cultural heritage of Catalonia, as compared to the rest of Spain,
translates to a different institutional construct, which may influence the propensity
of Catalans towards entrepreneurial activity in different ways to what can be found in
the rest of Spain. Costa-i-Font and Tremosa-i-Balcells (2003) highlight the regional
heterogeneity of the Spanish territory and set Catalonia and Madrid as the
two economic front-runners of the country, where Catalonia is identified as being
open and industrialized and Madrid as a mainly administrative centre.
They concluded that the Catalan economic cycle is much more closely linked to the
European cycle than what is experienced in the rest of Spain (Costa-i-Font and
Tremosa-i-Balcells 2003).
Historically, an important proportion of Catalonia’s industrial infrastructure was
located in rural areas, affecting its institutional framework. In fact, business creation
in rural Catalonia is currently more dynamic than its urban counterpart. An analysis
of the most recent census results (2001) show that whereas the proportion of the
Catalan population living in rural municipalities is 11.9%, these same rural areas
account for 12.9% of Catalan enterprises. As a result, we find that enterprise density is
greater in rural areas than it is in urban areas of Catalonia (7.5 as compared to
6.7 enterprises per 100 inhabitants, respectively). More importantly, the growth in the
number of enterprises over the 5-year period from 1996 to 2001 has been far greater in
rural Catalonia (25.7%) than it has in urban areas of Catalonia (10.4%)
(IDESCAT). Moreover, as previously mentioned, the entrepreneurial activity levels
of rural Catalonia far surpass those of both rural and urban areas of Spain.
Rural Catalonia exhibits entrepreneurial characteristics that are compatible with
the endogenous growth paradigm that calls for the development of rural areas based
on its own internal resources, both material and human, including local
entrepreneurial capabilities (Drabenstott et al. 2003, Kellogg Foundation, 2003).
According to the findings of different studies carried out in rural Catalonia
(Rosell and Viladomiu 2002, Viladomiu et al. 2004, Rosell et al. 2006), a very large
majority of the entrepreneurs in rural Catalonia were born and raised in the same
rural localities where they are currently operating their own businesses. However,
Viladomiu et al. (2004) found that over half of the observed rural Catalan
entrepreneurs worked or studied in urban areas prior to becoming entrepreneurs.
These authors conclude that many rural entrepreneurs in Catalonia use business
creation as a way to return or remain in their rural localities, indicating a
predominant ‘lifestyle’ motivation behind Catalonia’s high entrepreneurial rates.
Accordingly, the distinct institutional framework of rural Catalonia is expected to
condition the social traits’ influence over entrepreneurial activity.
2.3 Social traits influencing entrepreneurial activity
The model developed in this paper will examine whether or not the influence of
social-cultural traits upon entrepreneurial activity differs across territories with
distinct institutional frameworks. The hypotheses to be tested are based on some of

the traits most commonly identified within the literature as influential for
entrepreneurship: social stigma towards entrepreneurial failure and the presence of
entrepreneurial role models.
According to the Green Paper on Entrepreneurship by the European Commission
(2003), entrepreneurs in Europe must face a social stigma of failure which augments
the risks associated with engaging in entrepreneurial activities. Apart from the formal
legal and financial consequences implied by bankruptcy and entrepreneurial failure,
the informal social repercussions often act as important obstacles to entrepreneurship.
Landier (2004) demonstrates how different attitudes of entrepreneurs and the capital
market towards liquidation explains differences in levels of entrepreneurship.
The same author concludes that the stigma associated with failure is an important
determinant of entrepreneurial activity, conditioning not only the decision to become
an entrepreneur, but also the character of the venture to be launched and the decision
to terminate an entrepreneurial project. In America the social norms are found to be
more favourable to business failure, which is seen as a step within an entrepreneur’s
personal development process (Saxenian 1994). To the contrary, entrepreneurial
failure is highly stigmatized in Europe. A communication from the European
Commission (1998: 14) said the following:
In Europe, a serious social stigma is attached to bankruptcy. In the USA bankruptcy laws
allow entrepreneurs who fail to start again relatively quickly and failure is considered to be
part of the learning process. In Europe those who go bankrupt tend to be considered
as ‘losers’.
The mentioned stigma was seen as sufficiently important to merit its own key action
within the European Commission’s The European Agenda for Entrepreneurship (European
Commission 2004).
In territories with high levels of social stigma towards failure, individuals are
dissuaded from becoming entrepreneurs. In cultures where there exists a relatively
greater tolerance and/or acceptance of entrepreneurial failure, a far larger proportion
of the adult population tend to engage and become involved in entrepreneurial
activities (Landier 2004). This leads us to formulate our first hypothesis:
Hypothesis 1a: The negative relationship between social fear of failure and
entrepreneurial activity is stronger in rural rather than urban areas.
Hypothesis 1b: The negative relationship between social fear of failure and
entrepreneurial activity is weaker in rural Catalonia rather than in rural areas of
the rest of Spain.
Fornahl (2003) proposed that amongst the institutional factors influencing

entrepreneurial activity, the role of positive entrepreneurial examples is especially
important in a rural (regional) context. The importance of positive examples over the
decision to become an entrepreneur has been known for some time (Speizer 1981,
Shapero and Sokol 1982). The presence of entrepreneurial role models, be it in a rural
or urban setting, strongly influences the cognitive representation of economic agents
and strongly influences their decision to become an entrepreneur (Krueger 1993).
The argument is that the ‘development and the related likelihood of discovering
entrepreneurial opportunities and increasing the willingness to start a new firm is
strongly influenced by positive examples, so-called role models’ (Fornahl 2003: 50).
These positive examples have two main effects, first, it may make it easier to discover
and act upon entrepreneurial opportunities if other similar and successful business
opportunities, identified by others, can serve as references. Second, entrepreneurial

example leads to a (re-)allocation of cognitive attention to certain opportunities or
business conceptions affecting the direction of the active search, and perception, of
opportunities as well as the confidence in ones own entrepreneurial possibilities.
A positive example leads to an increase in the likelihood that other agents also become
entrepreneurs (Speizer 1981).
Thus, the higher the number of entrepreneurs, the higher the likelihood that other
agents, within a socially tight context, will change their propensity towards an
entrepreneurial career (Gibson 2004). Once a critical mass is overcome, the local
institutional framework evolves to include a new social cognitive perception that
is more fertile for entrepreneurial activity. Regions therefore differ in their
entrepreneurial propensity, according to Fornahl (2003), because of ‘small historical
singularities’ that lead to a situation in which regions develop different common
cognitive perceptions, influencing the diffusion of new positive examples (role models).
As a consequence, the acceptance of entrepreneurial activity within the region
becomes socially embedded.
The promotion of an entrepreneurial culture and positive attitudes
towards entrepreneurship can be encouraged by ‘providing role models through the
‘‘showcasing’’ of success stories’ (European Commission 2003: 21). Hence, the second
hypothesis emerges:
Hypothesis 2a: The positive relationship between entrepreneurial role models and
entrepreneurial activity is stronger in urban rather than rural areas.
Hypothesis 2b: The positive relationship between entrepreneurial role models and
entrepreneurial activity is stronger in rural Catalonia rather than rural areas of the
rest of Spain.
3. Data and methodology
3.1 Data selection
The data used to carry out this study comes from the Spanish Global
Entrepreneurship Monitor (GEM) for the year 2003. Today, more than 40 different
countries have taken part in the research initiative, making it a world reference for
research into the entrepreneurship phenomenon and a highly valued source of
information for professionals and policy-makers in each of the participating countries.
A recent paper by Reynolds et al. (2005) offers a comprehensive description of the
GEM project and its methodology.
The sample used for this study was based on a multiple stage sampling method.
First, a random selection of municipalities was collected according to population
quotas. In a second stage, telephone numbers corresponding to the different
municipalities were randomly obtained. Finally, persons between the ages of 18 and
65 years inclusively were selected.
The original database used in this research contained 7000 observations from
Spanish individuals, including 1243 (17.76%) and 5757 (82.24%) from the rural and
urban areas, respectively. In the case of the rural sub-sample, 292 (23.49%)
Catalonian observations and 951 (76.51%) from the rest of Spain were collected.
However, in the interest of following a rigorous methodology, only individuals for
whom a complete dataset of the independent variables can be constructed

are included. Thus, data availability limits the final sample to 4877 observations,
843 (17.29%) and 4034 (82.71%) for rural and urban areas, respectively. For the
rural sub-sample, 843 observations, 201 (23.84%) from Catalonia and 642 (76.16%)
from the rest of Spain are finally considered.
3.2 Determining rurality
To distinguish between rural and urban areas this study has adopted the Kayser
(1990) criterion, which is commonly found in the related literature and is the criterion
currently being considered within Catalonia’s Rural Development Plan for the period
2007–2013. The Kayser criterion is the one used by the GEM within its research
methodology. This criterion is based on demographic figures and considers as rural
those municipalities (NUTS IV, Nomenclatura de Unidades Territoriales
Estadı́sticas) that have a population of less than 5000 inhabitants. Municipalities
with populations greater than 5000 inhabitants are considered as urban areas.
Garcia Coll and Sanchez Aguilera (2004), in a recent study of the demographic
distribution of rural Catalonia, adopted a more restrictive criterion to determine
rurality in Catalonia by identifying rural areas as those municipalities with less than
2000 inhabitants. They added a third, intermediary category for municipalities with
populations of between 2001 and 10 000 inhabitants. Urban areas, in the mentioned
study, were municipalities with populations surpassing 10 000 inhabitants.
Together with population figures in absolute terms, population density is also
a common criterion used to determine the border between rural and urban areas, and
is one commonly used by policy-makers and academics (North et al. 2001, Rosell and
Viladomiu 2002, Smallbone et al. 2002). The OECD has come to use population
density as a measure of rurality, where areas of less than 150 inhabitants per km2 are
considered as being rural (OECD 1996). In regional terms, the OECD considers rural
those areas of level 3 NUTS (equivalent to the Catalan provinces) with over 50% of its
population living in rural municipalities. In Catalonia, this would be the case for the
province of Lleida.
The European Commission also uses population density to measure rurality. In the
European Commission publication, Rural Development. CAP 2000 Working
Document (European Commission 1997a: DG V1), the Commission qualifies as
rural those areas with a population density below 100 inhabitants per km2. This is the
criterion which has been applied in previous research on rurality and
entrepreneurship in Catalonia, adopting the Catalan ‘comarca’ or county as the

territorial unit of analysis (Rosell and Viladomiu 2002, Viladomiu et al. 2004).
Although research and policy have used different criteria to define rurality, data
collection difficulties and statistical limitations have led to a more frequent use of
larger territorial units in its analysis. There are pros and cons associated with both
wide (NUT III or county) and narrow (municipality) territorial units when used for
the analysis of rural entrepreneurship.
The use of the county as a unit of analysis of rurality offers some inconsistencies as
certain counties of a mostly rural character integrate municipalities representing
important urban centres. This is the case of the rural Catalan counties of Alt
Empordà, Baix Ebre and Garrotxa, which all have municipalities of over 20 000
inhabitants.
On the other hand, municipalities also offer contradictions when used as the
territorial unit of analysis in the investigation of rurality. Often, sub-urban
municipalities, even though they are immediately adjacent to important metropolitan
areas, may end up within the rural classification because of their demographic
distribution. For example, this is the case of the rural Catalan municipalities of
el Papiol, Vacarisses, Sant Climent de Llobregat, la Palma de Cervelló, and Torralles
de Llobregat that have less than 5000 inhabitants, and therefore classify as rural
according to the Kayser criterion, but are situated within the metropolitan sphere of
influence of the city of Barcelona (Vaillant 2006).
3.3 Determinant factors of entrepreneurial activity
Before going further we must define what is meant by entrepreneurial activity.

As in Wagner (2004), we consider that individuals involved in ‘start-up’ activities
or who have recently launched a business (over the last 42 months) as being
entrepreneurially active. Consequently, the dependent variable used in this paper is a
dummy that takes the value of one if the individual is entrepreneurially active, and
zero otherwise. This variable reflects both the proportion of the adult population that
is in the process of creating a new enterprise as well as those that have recently set-up
their new business. Also, this measure of entrepreneurial activity does not discriminate
based on the size or purpose of the venture, including self-employment and part-time
entrepreneurial activities to our observations.
From table 1 we observe that 4.47% of the adult population in the sample of
Spanish observations is involved in entrepreneurial activities. The entrepreneurial
activity level for the respondents living in rural areas of Spain is 5.34%, while the level
for those residing in urban areas is 4.29%. However, there is no statistically significant
difference found between these levels. Table 1 also offers the descriptive statistics of the
sub-sample of rural observations used for the second application of our model.
In this table it can be observed how there exists a high statistically significant
difference between rural Catalonia and rural areas of the rest of Spain in what refers to
entrepreneurial activity. The entrepreneurial activity level in rural Catalonia is
11.44%, while the level of entrepreneurial activity amongst the respondents from rural
areas excluding Catalonia stands at 3.43%.
As for the independent variables in our model, we first consider the entrepreneur’s
profile with a set of independent variables commonly found in similar models
Table 1. Descriptive statistics of selected variables for full sample.

Variables Rural Catalonia Rural areas of the rest of Spain Rural area Urban area Full sample
Entrepreneurial activity 0.1144*** (0.3191) 0.0343 (0.1821) 0.0534 (0.2249) 0.0429 (0.2026) 0.0447 (0.2067)
Gender (1 for man, 0 otherwise) 0.8905*** (0.3130) 0.4595 (0.4987) 0.5623*** (0.4964) 0.4831 (0.4998) 0.4968 (0.5000)
INFLUENCE OF SELECTED SOCIAL TRAITS
Age (years) 42.2935 (12.9745) 41.7570 (12.6952) 41.8849 (12.7566) 41.2018 (12.9614) 41.3199 (12.9276)
Secondary, not finished 0.3980 (0.4907) 0.3988 (0.4900) 0.3986*** (0.4899) 0.3287 (0.4698) 0.3408 (0.4740)
Secondary, finished 0.3831 (0.4874) 0.3769 (0.4850) 0.3784** (0.4853) 0.4207 (0.4937) 0.4134 (0.4925)
University studies 0.1990 (0.4002) 0.1636 (0.3702) 0.1720* (0.3776) 0.2124 (0.4091) 0.2055 (0.4041)
Self-confidence in entrepreneurial skills 0.5473*** (0.4990) 0.3972 (0.4897) 0.4330 (0.4958) 0.4237 (0.4942) 0.4253 (0.4944)
Social fear of entrepreneurial failure 0.3483 (0.4776) 0.3988 (0.4900) 0.3867 (0.4873) 0.3756 (0.4843) 0.3775 (0.4848)
Personal knowledge of recent entrepreneur 0.3682** (0.4835) 0.2944 (0.4561) 0.3120 (0.4636) 0.2970 (0.4570) 0.2996 (0.4581)
Number of observations 201 642 843 4034 4877
Notes: In the rural sub-sample we compare the results for rural Catalonia versus those reported for rural areas in the rest of Spain. In the case of the full sample the
comparison is carried out between rural and urban areas. Values in brackets represent the standard deviation. *p ¼ 0.10; **p ¼ 0.05; ***p ¼ 0.01 (Kruskal–Wallis test).
323
explaining entrepreneurial activity: gender, age, education ( Johansson 2000,

Uusitalo 2001, Douglas and Shepard 2002, Wagner 2004).
First we consider the individual’s gender. Gender is an important factor explaining
the different propensity levels of individuals towards entrepreneurial activity.
Gender distribution of entrepreneurship also determines the character and societal
impact of the resulting entrepreneurship (OECD 2004). Depending on the gender
system of an economy, women’s entrepreneurial activity levels are usually lower than
men’s levels. At the same time, women’s entrepreneurship tends to have a different
industrial configuration than men’s entrepreneurship (Carter et al. 2001). Women also
start and manage firms in different ways and for different motivations than do men
(Brush 1992). Women often have access to ‘fewer resources, less knowledge and have
in many countries a lower societal position than men’ (OECD 2004: 30). Nevertheless,
women’s entrepreneurship has been recognized during the last decade as an important
untapped source of economic growth (OECD 2004).
Thus, in our models we introduce a dummy variable for gender, taking a value
of one if the individual is a man, and zero otherwise. Table 1 shows that the
proportion of men in rural areas is significantly greater than what can be seen in urban
areas of Spain.
The second factor considered is the individual’s age, expressed in years. According
to Singh and Verma (2001) the decision to become an entrepreneur is
affected by different factors along an individual’s life cycle. Labour economists,
using income-leisure choice models, have usually attributed the choice of leisure to
older workers (Singh and Denoble 2003). This would indicate a gradual decline in the
propensity of individuals towards entrepreneurial activity as they become older.
This decline usually starts past a climax point around the late thirties, at which point
most entrepreneurs enter into entrepreneurship following a period of labour activity
(Katz 1994). The link between age and entrepreneurial activity is double sided,
whereas older individuals usually have greater tangible and intangible resources
essential for successful business creation, younger individuals often have greater drive
and ambition needed to persevere through the entrepreneurial process.
Third, it is widely recognized that education influences people’s attitudes towards
starting their own business (Donkels 1991, Krueger and Brazeal 1994). Individuals
with lower education levels may see in entrepreneurship an opportunity to advance,
economically and socially, beyond the constraints imposed by their formal education
(Donkels 1991). However, individuals with lower formal education may have
a narrower scope of entrepreneurial opportunities available to them (Krueger
1993). As for individuals with higher educational attainments, on the one hand, they
tend to have greater technical and managerial skills that open up a larger array of
possible entrepreneurial opportunities (Krueger 1993). On the other hand, greater
formal education levels have also been associated with greater employment
opportunities, leading to a higher opportunity cost of entrepreneurial activity
( Johansson 2000). Formal education is considered using dummy variables distin-
guishing people who finish secondary education and those who did not, as well as
people with a university education. In the Spanish sample, rural areas show a
significantly greater proportion of individuals with basic educational achievements,
whereas urban areas demonstrate significantly higher proportions of respondents
having completed secondary and university education (table 1).
Furthermore, we consider the self-confidence in one’s own entrepreneurial skills as
a dummy variable, assuming a value of one if the person makes a positive assessment of
his/her entrepreneurial skills, and zero otherwise. Several studies have recently used
this variable in substitution, or together with, formal business training. These studies
have found that entrepreneurial self-confidence explains an important part of the
decision to become an entrepreneur (Krueger and Brazeal 1994, Arenius and Minniti
2004, Köllinger et al. 2004, Lee et al. 2004). From table 1 we observe that there is no
statistically significant difference in what refers to self-confidence in entrepreneurial
skills. However, in the rural sub-sample, individuals from Catalonia have statistically
significant higher levels of self-confidence in their entrepreneurial skills, as compared
to the level shown by respondents from the rest of Spain (table 1).
A second set of dummy variables are included to represent the socio-cultural traits
upon which the study bases its research framework. These variables have been
identified by the OECD (2003), the European Commission (2003), Wagner (2004)
and Lafuente et al. (2007) as some of the most important factors influencing
entrepreneurship. The variables used are: (1) the fear of entrepreneurial failure
as an obstacle to business creation; and (2) the presence of an entrepreneurial role
model, who has created a new business over the past two years within one’s personal
social circle.
3.4 Method
An individual will become entrepreneurially active if the total consideration of push

and pull factors results in a positive decision. Hence, it is easy and convenient to
consider the decision behind becoming an entrepreneur as a process that generates
a binary choice model. Previous empirical research addresses the entrepreneurial
decision through standard probit and logit models as described in Blanchflower and
Meyer (1994), Greene (1997), Johansson (2000), Uusitalo (2001) and Burke et al.
(2002). Nevertheless, as shown in tables 1 for the total sample, the proportion of
individuals that are involved in entrepreneurial activities is only 4.47%.
Consequently, the fact that a person is involved in entrepreneurial activities can be
considered as a rare event.
Therefore, the application of traditional logit models in samples where the binary
dependent variable has much fewer ‘ones’ (positive response) than ‘zeros’ (negative
response) may lead to biased results due to the underestimation of the parameter
estimates. Recently, King and Zeng (2001a, b) developed a method for computing
estimates in logit models that correct for the presence of rare events or small samples,
which they labelled rare events logit model. The procedure is based on the standard
logit model but using an estimator that generates a lower root mean square error for
coefficients. Further empirical evidence on the impact of the informal institutional
framework upon entrepreneurial activities using rare events logit models can be found
in Wagner (2004) and Lafuente et al. (2007).
Thus, to corroborate our framework, and to identify those characteristics that
make individuals more likely to become entrepreneurially active we perform a rare
events logit regression model estimated by maximum likelihood. A first application of
the model identifies those characteristics that make individuals more likely to become
entrepreneurially active in rural and urban areas of Spain. Our second application
of the model will do the same comparing rural areas of Catalonia and the rest of
Spain (excluding Catalonia).
To test whether the presence of the chosen socio-cultural variables (social fear of
entrepreneurial failure and the presence of entrepreneurial role models), have an
influence upon entrepreneurial activity we carry out two applications of the same
model. The first application, presented in Equation 1, will take into consideration the
entire sample of Spanish observations and includes an interaction term to detect the
differentiated effect of rurality over the selected social traits.
Entrepreneurial Activityi ¼ 0 þ 1 Control Variablesi þ 2 Social Feari
þ 3 Social Feari Rurali þ 4 Role Modeli
þ 5 Role Modeli Rurali þ "i ð1Þ

where
0 ¼ constant term
n ¼ vector of parameters to be estimated for the nth independent
variables.
"i ¼ logistic distributed error term for the ith cases.
In terms of our hypotheses, we expect that 240 and 250, meaning that the
social stigma to business failure exerts a stronger effect in rural areas (Hypothesis 1a).
Similarly, we expect that 4 þ 545 or 440, indicating that the presence of
entrepreneurial examples has a positive impact upon entrepreneurial activity in urban
areas (Hypothesis 2a).
The second application, Equation 2, will only deal with a sub-sample made up
of the respondents from our original sample living in rural areas. This second
application will consider an interaction term to detect the differentiated effect of living
in rural Catalonia over the selected social traits. The formulation of the second
application to our model follows:
Rural Entrepreneurial Activityi ¼ 0 þ 1 Control Variablesi þ 2 Social Feari

þ 3 Social Feari Cataloniai þ 4 Role Modeli
þ 5 Role Modeli Cataloniai þ "i ð2Þ
Using this notation, we can rewrite our hypotheses as follows:
Hypothesis 1b : 2 50, 3 > 0
Hypothesis 2b : 4 50, 5 > 0
This implies that the impact of the social stigma to business failure is stronger in rural
areas in the rest of Spain rather than rural Catalonia (Hypothesis 1b). Also, we expect
that 4 þ 544 or 540, meaning that the presence of role models exerts a stronger
impact in rural Catalonia rather than rural areas in the rest of Spain (Hypothesis 2b).
In Equations 1 and 2 control variables correspond to the entrepreneur’s profile, i.e.
gender, age, education, and the self-confidence in entrepreneurial skills. The variable
Rural in Equation 1 takes the value of one if the respondent lives in a rural area, and
zero otherwise. Similarly, the variable Catalonia in Equation 2 to the sub-sample of
rural observations takes a value of one if the respondent resides in Catalonia, and
zero otherwise.
Parameters estimated from the rare events logit model only indicate the direction
of the effect of each explanatory variable on the response probability. To obtain a
better understanding of the results, we also calculate the first difference, which is the
change in the probability as a function of a specific change in a variable holding the
rest of variables constant at their means. First differences for the variables related to
the informal institutional factors are estimated as x ¼ Pr(Y ¼ 1|X ¼ 1)
Pr(Y ¼ 1|X ¼ 0).
Finally, we also calculate the proportion of correctly classified (predicted)
observations. This is done for the full sample as well as for those observations that
have become entrepreneurially active (adopter) and those that have not (non-
adopters).
4. Empirical findings
The results of the different applications of the rare events logit model of the binary
decision to become entrepreneurially active are presented in this section. Tables 2 and 3
show the first application of our model which applies to the entire Spanish sample using
an interaction term for residents of rural areas (equation 1). The first specification found
in column 1 of these tables shows the results from our basic model including an
independent variable that captures the influence of rurality over entrepreneurial
activity. The second and third columns include the interaction terms which capture the
influence of rurality over the independent impact of our considered socio-cultural
factors on entrepreneurial activity. Finally, the fourth specification in column 4 presents
the results for the full model, where all the interaction terms are considered.
As can be seen in column 1 of table 2, the fact that a respondent lives in a rural
area of Spain has no significant influence over the probability of becoming
entrepreneurially active. To the contrary, we find a consistent significant influence
of being a man over entrepreneurial activity throughout all the specifications applied
to the Spanish sample. Thus, from specification 4 in table 3 we observe that, holding
the rest of the variables constant, the probability of becoming entrepreneurially active
increases by 1.46% for males. This finding is in line with that reported in Blanchflower
and Meyer (1994) and Johansson (2000).
Individuals with higher levels of education are found to be more likely to be
entrepreneurially active. The individual’s educational variables included in the
specifications of our model have a negative impact on the decision to become
entrepreneurially active. This effect is statistically significant in the case of secondary
studies. However, because the omitted variable is university studies, we can conclude for
the Spanish sample that individuals with higher levels of education are more likely to be
entrepreneurially active. This finding is similar to that reported by Krueger (1993).
We can also observe that a positive valuation of self-confidence in entrepreneurial
skills increases the probability of becoming entrepreneurially active. This is consistent
with previous studies having used similar variables (Arenius and Minniti 2004,
Köllinger et al. 2004, Lee et al. 2004). Results for the first differences presented in
specification 4 in table 3 indicate that, holding other variables constant at their means,
the positive perception of one’s own entrepreneurial skills increases the probability of
entrepreneurial activity by 7.398%.
The variable representing the social stigma towards business failure has
a statistically significant negative effect upon entrepreneurial activity in Spain.
328
Table 2. Rare events logit model: entrepreneurial activity in Spain.

Independent variables 1 2 3 4
Rural (1 if positive, 0 otherwise) 0.1961 (0.1777)

Gender (1 for man, 0 otherwise) 0.6418*** (0.1525) 0.6482*** (0.1523) 0.6519*** (0.1521) 0.6505*** (0.1523)
Age (years) 0.0008 (0.0051) 0.0008 (0.0051) 0.0009 (0.0051) 0.0009 (0.0051)
Primary studies 0.1011 (0.1873) 0.0876 (0.1873) 0.0957 (0.1864) 0.0960 (0.1865)
Secondary studies 0.2895* (0.1715) 0.2851* (0.1713) 0.2894* (0.1717) 0.2870* (0.1716)
Self-confidence in entrepreneurial skills 2.3695*** (0.2231) 2.3663*** (0.2225) 2.3721*** (0.2233) 2.3691*** (0.2225)
Social fear for entrepreneurial failure 0.4193** (0.1688) 0.4917*** (0.1894) 0.4232** (0.1697) 0.4563** (0.1907)
Rural Social fear for entrepreneurial failure 0.3769 (0.3379) 0.1700 (0.3800)
Personnel knowledge of recent entrepreneur 0.2198 (0.1442) 0.2182 (0.1441) 0.1236 (0.1558) 0.1302 (0.1558)
Rural Personnel knowledge of recent entrepreneur 0.4817** (0.2493) 0.4495* (0.2675)
Intercept 4.9170*** (0.3701) 4.8894*** (0.3687) 4.8964*** (0.3692) 4.8912*** (0.3691)
Pseudo R2 0.1437 0.1437 0.1449 0.1450
Log likelihood 762.5824 762.6036 761.5022 761.4202
LR (2) 145.75*** 145.25*** 147.49*** 147.44***
Correctly predicted (Adopters) 0.8853 0.8716 0.8624 0.8624
Correctly predicted (Non-adopters) 0.6126 0.6263 0.6190 0.6248
Correctly predicted (Full Sample) 0.6248 0.6373 0.6299 0.6354
Number of cases 4877 4877 4877 4877
Note: Robust standard errors are presented in brackets. Dependent variable: One if the person is identified as being involved in entrepreneurial activity. Rural sample
size ¼ 843. Urban sample size ¼ 4034.*p ¼ 0.10; **p ¼ 0.05; ***p ¼ 0.01 (two tailed).
YANCY VAILLANT AND ESTEBAN LAFUENTE
Table 3. Rare events logit model: first differences in the probability to be involved
in entrepreneurial activities in Spain.
Rural (1 if positive, 0 otherwise) 0.00436

Gender (1 for man, 0 otherwise) 0.01427 0.01480 0.01436 0.01455
Primary studies 0.00236 0.00206 0.00211 0.00207
Secondary studies 0.00606 0.00632 0.00612 0.00600
Self-confidence in entrepreneurial skills 0.07397 0.07413 0.07384 0.07398
Social fear for entrepreneurial failure 0.00868 0.01040 0.00888 0.00955
Rural Social fear for entrepreneurial failure 0.00954 0.00318
Personal knowledge of recent entrepreneur 0.00513 0.00481 0.00276 0.00298
Rural Personal knowledge of recent entrepreneur 0.01294 0.01129
Number of cases 4877 4877 4877 4877
Note: The first difference represents the change in the probability as a result of a discrete change from
zero to one in the independent variable, i.e. x ¼ Pr(Y ¼ 1|X ¼ 1)Pr(Y ¼ 1|X ¼ 0). Rural sample size ¼ 843.
Urban sample size ¼ 4034.
More specifically, specification 4 in table 3 indicates that the probability of being

entrepreneurially active decreases by nearly 1% (0.955%) in the presence of social
fear to entrepreneurial failure. This result is consistent with the findings of Simon et al.
(1999) and Wagner and Sternberg (2004). In this case, the interaction term for rurality
does not detect any significant difference in the influence of such a social stigma amongst
respondents residing in rural as compared to urban areas. Consequently, we reject
Hypothesis 1a since the negative relationship between social stigma to entrepreneurial
failure is not stronger in rural areas as compared to urban areas of Spain.
The most interesting result emerges from the third specification of our model which
adds an interaction term for rurality to the role model variable. In the case of the
entire Spanish sample, the role model proxy, contrary to the finding reported in
Krueger (1993), Macke (2002), and Gibson (2004), does not present a statistically
significant influence over entrepreneurial activity (table 2). However, the interaction
term which takes the distinct effect of rurality over this socio-cultural variable does
find entrepreneurial role models to have a significant positive effect over
entrepreneurial activity in rural areas. In this case, we observe how the interaction
term relating the presence of role model and residing in a rural area increases the
probability of being involved in entrepreneurial activities by 1.129% (specification 4,
table 3). This result leads to reject Hypothesis 2a due to the relationship between
entrepreneurial role models and entrepreneurial activity is not stronger in urban areas
than in rural areas of Spain.
The results of the second application of our model to the sub-sample of rural
residence are found in tables 4 and 5. Similar to the previous results presented in
table 2, the first column of table 4 shows the results from our basic model including an
independent variable that captures the influence of residing in rural Catalonia over
entrepreneurial activity. The second and third columns include the interaction terms
which capture the influence of residing in rural Catalonia over the independent
impact of the social fear of entrepreneurial failure (column 2) and the presence
of entrepreneurial role models (column 3) over entrepreneurial activity. Finally,
column 4 presents the results for the full model, where all the interaction terms are
considered.
330
Table 4. Rare events logit model: entrepreneurial activity in rural Spain.

Catalonia (1 if positive, 0 otherwise) 0.9481*** (0.3619)

Gender (1 for man, 0 otherwise) 0.1397 (0.3841) 0.5315 (0.3320) 0.1504 (0.3838) 0.2029 (0.3664)
Age (years) 0.0124 (0.0123) 0.0109 (0.0116) 0.0120 (0.0124) 0.0122 (0.0123)
Primary studies 0.1859 (0.4164) 0.1805 (0.4161) 0.0896 (0.4225) 0.0916 (0.4218)
Secondary studies 0.1660 (0.4447) 0.1282 (0.4349) 0.1322 (0.4440) 0.1234 (0.4428)
Self-confidence in entrepreneurial skills 2.6225*** (0.5992) 2.6909*** (0.6020) 2.6438*** (0.6054) 2.6750*** (0.6102)
Social fear for entrepreneurial failure 0.2566 (0.3546) 0.2287 (0.4145) 0.2063 (0.3622) 0.0790 (0.4283)
Catalonia Social fear for entrepreneurial failure 0.1431 (0.5961) 0.6056 (0.7198)
Personal knowledge of recent entrepreneur 0.4644 (0.3192) 0.5599* (0.3293) 0.1509 (0.4544) 0.2056 (0.4544)
Catalonia Personal knowledge of recent entrepreneur 1.4667*** (0.5187) 1.6285*** (0.5690)
Intercept 4.6922*** (0.9719) 4.7867*** (0.9609) 4.3950*** (0.9826) 4.4788*** (0.9850)
Pseudo R2 0.1976 0.1767 0.2046 0.2073
Log likelihood 140.9403 144.6021 139.7040 139.2314
LR (2) 41.40*** 35.67*** 48.11*** 50.00***
Correctly predicted (Adopters) 0.8444 0.8667 0.8889 0.9333
Correctly predicted (Non-adopters) 0.6328 0.6228 0.6065 0.6165
Correctly predicted (Full sample) 0.6441 0.6358 0.6216 0.6335
Number of cases 843 843 843 843
Notes: Robust standard errors are presented in brackets. Dependent variable: One if the person is identified as being involved in entrepreneurial activity. Catalonian sample
size ¼ 201. Rest of Spain sample size ¼ 642.*p ¼ 0.1; **p ¼ 0.05; ***p ¼ 0.01 (two tailed).
YANCY VAILLANT AND ESTEBAN LAFUENTE
Table 5. Rare events logit model: First differences in the probability to be involved
in entrepreneurial activities in rural Spain.
Catalonia (1 if positive, 0 otherwise) 0.02760

Gender (1 for man, 0 otherwise) 0.00301 0.01228 0.00316 0.00410
Primary studies 0.00434 0.00376 0.00118 0.00197
Secondary studies 0.00364 0.00307 0.00253 0.00237
Self-confidence in entrepreneurial skills 0.08888 0.09599 0.09068 0.09552
Social fear for entrepreneurial failure 0.00602 0.00568 0.00471 0.00166
Catalonia Social fear for entrepreneurial failure 0.00368 0.01060
Personal knowledge of recent entrepreneur 0.01099 0.01513 0.00323 0.00432
Catalonia Personal knowledge of 0.06475 0.07961
recent entrepreneur
Number of cases 843 843 843 843
Notes: The first difference represents the change in the probability as a result of a discrete change from
zero to one in the independent variable, i.e. x ¼ Pr(Y ¼ 1|X ¼ 1)Pr(Y ¼ 1|X ¼ 0). Catalonian sample
size ¼ 201. Rest of Spain sample size ¼ 642.
As can be seen in the first column of table 4, the fact that a respondent lives in
a rural area of Catalonia has a significant influence over his/her probability of
becoming entrepreneurially active (g ¼ 2.76%). Contrary to the first application using
the sample for all of Spain, we do not find a significant influence of being a man over
entrepreneurial activity within the sub-sample of rural residents. Nor do we find any
significant influence of educational achievements over entrepreneurial activity. We do,
however, observe that the self-confidence of the respondents in their entrepreneurial
skills increases their probability of becoming entrepreneurially active. In this case,
we observe from specification 4 in table 5 that, holding other variables constant at
their means, the positive perception about entrepreneurial skills increases the
probability of entrepreneurial activity by 9.552%.
If we observe the influence of the selected social traits, we see that contrary to the
findings of Landier (2004) the social fear of entrepreneurial failure shows no significant
influence upon entrepreneurial activity: i.e. the stigma to business failure does not
appear as a significant constraining factor to entrepreneurial activity in rural areas.
This lack of influence is as much the case for the entire sub-sample of rural residents as
for the interaction term representing the specific influence of rural residents living
in Catalonia, as seen in column 2 of table 4. Considering that the negative relationship
between social fear to failure and entrepreneurial activity is not weaker in
rural Catalonia than in rural areas of the rest of Spain, we therefore reject
Hypothesis 1b.
Again, an interesting result emerges when the variable capturing the influence
of role models over entrepreneur activity is analysed. Whereas entrepreneurial role
models appear to have only a weak influence over entrepreneurial activity in rural
areas, as seen in the second specification (column 2), the interaction term found in
column 3 clearly indicates a different scenario. The positive influence of
entrepreneurial role models over entrepreneurial activity is highly significant in
rural areas of Catalonia. This variable is not found to be significant for our sub-sample
of rural residents if we exclude rural Catalonia. For this variable, we can see from
specification 4 how the interaction of residing in a rural area of Catalonia and the
personal knowledge of a recent entrepreneur increases the probability of entrepre-
neurial activity by 7.961%. The positive relationship between entrepreneurial role
models and entrepreneurial activity is stronger in rural Catalonia as compared to rural

areas of the rest of Spain, leading to confirmation of Hypothesis 2b.
5. Concluding remarks
The growing attention that business creation and entrepreneurial activity is receiving
as a complementary rural development tool within an endogenous development
strategy in-line with the New Rural Paradigm proposed by the OECD (2006),
has made it important to identify the distinctive factors influencing rural
entrepreneurial activity.
In a context where institutionalism and the external environment are being
increasingly linked to the distinct entrepreneurial activity levels of different territories

(Bryden and Hart 2005), we have attempted in this study to identify the influence of
selected socio-cultural factors upon entrepreneurial activity across territories with
distinct institutional frameworks. More specifically our drive has been to measure the
influence on the exceptional entrepreneurial performance of rural Catalonia of
the belief in the existence of a social stigma to entrepreneurial failure and the
presence of entrepreneurial role models, which are amongst the most
important conditioners of entrepreneurship according to the OECD (2003) and the
European Commission (2003).
This was done carrying out two applications of a rare events logit regression model.
The first application of the model was carried out using a random sample for the year
2003 of 4877 Spanish adult observations, 843 (17.29%) and 4034 (82.71%) for rural
and urban areas, respectively. A second application of the same model was
subsequently processed on a rural sub-sample of 843 observations, 201 (23.84%)
from Catalonia and 642 (76.16%) from the rest of Spain.
The main contribution of the study indicates that the difference in entrepreneurial
activity across territories with distinct institutional frameworks can in part be
explained by the differentiated impact of certain socio-cultural factors.
We report that the belief in the existence of a social stigma to entrepreneurial
failure is an important constraint for entrepreneurial activity in Spain, although this
effect does not manifest any significant differentiated impact in rural areas.
Furthermore, we find that rural Catalonia’s exceptional entrepreneurial
performance is mainly due to the superior impact of positive entrepreneurial examples
(role model effect).
These findings back the growing call for territorial specificity in the formulation
and application of entrepreneurship support measures and promotion.
Entrepreneurship support policies and programmes have mostly been laid out in
a uniform fashion across political and administrative boundaries. Our findings
demonstrate the need for greater attention and adaptation of entrepreneurship
support and promotion measures distinguishing between rural and urban areas.
Consequently, entrepreneurship promotion should become an integral part of any
rural development plan. The results of the study shows that entrepreneurship is
conditioned by the local institutional framework, and as such should not be isolated
from other rural policies. The sector-base character of most rural policy-making has
created a chasm separating the administrative bodies that have historically formulated
rural policy from those that have promoted entrepreneurship. The growing
importance of entrepreneurship and the diversification of the rural economic fabric
means that rural policy should become a multi-sector cross-governance exercise that
brings under the same scope all public decisions affecting rural areas, including
entrepreneurship promotion. In line with the New Rural Paradigm (OECD 2006),
rural entrepreneurship promotion should be seen as part of a greater holistic rural
policy and should have both a horizontally (across ministries) and vertically
(across political echelons) co-ordinated governance.
More precisely, the findings of this paper support the argument that
entrepreneurship promotion, especially in what concerns fostering of an adequate
socio-cultural context, fertile for new business creation and growth, is more often than
not a generational process. The search for short-term results for such policies can
result, depending on the performance measurement tools used, in the mistaken
impression that in rural areas entrepreneurship support policies are not having the
desired impact.
This paper opens up lines for future research, where new studies could attempt
to overcome one of our main limitations by introducing a greater number of
socio-cultural variables into the analysis. Further studies could also take into
consideration a longitudinal approach. Future research can correct for the lack of
territorial differentiation of Spanish areas outside Catalonia, as well as include
comparisons with other European rural areas.
Note
1. Measures addressing new business formation assistance in rural areas are found in the European
Commission document (1997b) under article 33 of ‘Agenda 2000’ within the menu, ‘Promoting the
adaptation and development of Rural Areas’; Ch. IX.
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Entrepreneurship & Regional

Do different institutional frameworks

To link to this article: http://dx.doi.org/10.1080/08985620701440007

PLEASE SCROLL DOWN FOR ARTICLE

Do diﬀerent institutional frameworks condition the

Keywords: rural entrepreneurship; entrepreneurial activity; stigma towards entrepreneurial

development and revitalization process of lagging European areas (Rosell and

Thus, this research aims to determine the speciﬁcities of entrepreneurial activity

2.1 Institutional approach to entrepreneurship research

A growing number of academics are demonstrating that a theoretical framework

Regarding research more directly related to rural entrepreneurial activity Pezzini

2.2 Distinctiveness of Catalan institutional framework

2.3 Social traits inﬂuencing entrepreneurial activity

distinct institutional frameworks. The hypotheses to be tested are based on some of

Fornahl (2003) proposed that amongst the institutional factors inﬂuencing

opportunities, identiﬁed by others, can serve as references. Second, entrepreneurial

3. Data and methodology

3.1 Data selection

whom a complete dataset of the independent variables can be constructed

3.2 Determining rurality

entrepreneurship in Catalonia, adopting the Catalan ‘comarca’ or county as the

3.3 Determinant factors of entrepreneurial activity

Before going further we must deﬁne what is meant by entrepreneurial activity.

Table 1. Descriptive statistics of selected variables for full sample.

explaining entrepreneurial activity: gender, age, education ( Johansson 2000,

An individual will become entrepreneurially active if the total consideration of push

Entrepreneurial Activityi ¼ 0 þ 1 Control Variablesi þ 2 Social Feari

þ 3 Social Feari Rurali þ 4 Role Modeli

þ 5 Role Modeli Rurali þ "i ð1Þ

Rural Entrepreneurial Activityi ¼ 0 þ 1 Control Variablesi þ 2 Social Feari

Table 2. Rare events logit model: entrepreneurial activity in Spain.

Rural (1 if positive, 0 otherwise) 0.1961 (0.1777)

Rural (1 if positive, 0 otherwise) 0.00436

More speciﬁcally, speciﬁcation 4 in table 3 indicates that the probability of being

Table 4. Rare events logit model: entrepreneurial activity in rural Spain.

Catalonia (1 if positive, 0 otherwise) 0.9481*** (0.3619)

Catalonia (1 if positive, 0 otherwise) 0.02760

models and entrepreneurial activity is stronger in rural Catalonia as compared to rural

increasingly linked to the distinct entrepreneurial activity levels of diﬀerent territories

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