THE IMPACT OF ENTREPRENEURSHIP IN REGIONAL ECONOMIC RESILIENCE:

A SPATIAL ANALYSIS OF THE U.S. GULF COAST REGION

HYEJIN JUNG

Bachelor of Public Administration

Sungkyunkwan University

August 2007

Master of Public Administration

Sungkyunkwan University

August 2009

Submitted in partial fulfillment of requirements for the degree

DOCTORAL OF PHILOSOPHY IN URBAN STUDIES AND PUBLIC AFFAIRS

at the

CLEVELAND STATE UNIVESITY

DECEMBER 2015
 We hereby approve this dissertation for

HYEJIN JUNG

Candidate for the Doctor of Philosophy in Urban Studies and Public Affairs degree

for the

Maxine Goodman Levin College of Urban Affairs

and the CLEVELAND STATE UNIVERSITY

College of Graduate Studies

_________________________________________________________________

Thesis Chairperson, WILLIAM M. BOWEN

_____________________________________________

Department & Date

_________________________________________________________________

Thesis Committee Member, EDWARD W. HILL

________________________________________

Department & Date

_________________________________________________________________

Thesis Committee Member, HAIFENG QIAN

_____________________________________________

Department & Date

Student’s Date of Defense: 10/15/2015

THE IMPACT OF ENTREPRENEURSHIP IN REGIONAL ECONOMIC RESILIENCE:

A SPATIAL ANALYSIS OF THE U.S. GULF COAST REGION

HYEJIN JUNG

ABSTRACT

The purpose of this study is to examine whether entrepreneurship is an important

factor of regional economic resilience. For this purpose, this study analyzes the regional

economic resilience of the regions affected by Hurricanes Katrina and Rita in 2005 and

the 2008-2009 economic recession. It is assumed that some regions in Alabama, Florida,

Louisiana, Mississippi, and Texas where different types of disturbances occurred are

effective research areas to examine the role of entrepreneurship in the recovery process.

From the dynamic panel analysis, this study finds that entrepreneurship is

positively related to employment and population growth in the affected regions. In line

with previous studies showing that entrepreneurship can contribute to economic growth,

this study adds to the extant literature on the role of entrepreneurship by considering

external shocks. However, this study reveals that entrepreneurship does not significantly

affect per capita income growth. It reflects that the effect of entrepreneurship can differ

according to the measurement used.

From the quasi-experimental analysis, regions with high entrepreneurial activities

show higher levels of employment and population than regions with low entrepreneurial

iii
activities after natural disasters. When other regional economic structures and the effects

of hurricanes are controlled, the difference in the levels of employment and population is

explained by entrepreneurship. Once the national economic recessions begin, however,

the difference between high and low entrepreneurship counties disappears. This reflects

that the role of entrepreneurship can differ according to the attributes of disturbances.

Based on the empirical results, this study demonstrates that entrepreneurship can be

an important element of regional economic resilience. To be specific, its role is

conspicuous in employment and population growth after natural disasters. Furthermore,

this study contributes to previous studies by illustrating that the effects of

entrepreneurship depend on measurement and disturbances. With regard to empirical

finding, this study suggests several policy implications that can increase regional

economic resilience.

iv
 TABLE OF CONTENTS

ABSTRACT ....................................................................................................................... iii

LIST OF TABLES ............................................................................................................ vii

LIST OF FIGURES ........................................................................................................... ix

CHAPTER

I. INTRODUCTION ................................................................................................1

II. ECONOMIC RESILIENCE AND ENTREPRENEURSHIP .............................5

2.1 The Concept of Regional Economic Resilience ...................................5

2.2 Linking Entrepreneurship to Regional Economic Resilience .............19

2.2.1 Entrepreneurial Orientations and Opportunities ...................19

2.2.2 Contribution of Entrepreneurship to Economic Growth .......28

2.3 Entrepreneurial Recovery from Natural Disasters .............................34

2.3.1 Economic Impacts of Hurricanes in 2005 .............................34

2.3.2 The Roles of Entrepreneurship in Post-hurricanes ................42

2.4 Entrepreneurial Recovery from Economic Recessions ......................52

2.4.1 Economic Impacts of Recessions in 2008-2009.....................52

2.4.2 The Roles of Entrepreneurship in Post-recessions .................58

III. RESEARCH DESIGN AND FRAMEWORK .................................................69

3.1 Introduction of Research Design .........................................................69

v
 3.2 Panel Analysis .....................................................................................71

3.2.1 Estimation Technique .............................................................71

3.2.2 Model Specification and Data Source ....................................74

3.3 Quasi-experimental Design .................................................................83

3.3.1 Propensity Score Matching .....................................................83

3.3.2 Interrupted Time Series Analysis............................................90

IV. RESULTS ......................................................................................................95

4.1 Results of Panel Analysis ...................................................................95

4.2 Results of Quasi-experimental Design .............................................108

V. DISCUSSION AND CONCLUSION .............................................................123

BIBLIOGRAPHY ............................................................................................................128

APPENDICES .................................................................................................................170

A. ITSA Results of Per Capita Income Growth ...................................................171

B. ITSA Results of Employment Growth ............................................................172

C. ITSA Results of Population Growth ................................................................173

vi
 LIST OF TABLES

Table Page

I. Different Concepts of Resilience ......................................................................................7

II. Key Terms Related to Ecological Resilience ................................................................10

III. Features of Resilient Regions ......................................................................................15

IV. Sources of Entrepreneurial Opportunities ....................................................................25

V. The Roles of Entrepreneurship in the Aftermath of Natural Disasters ..........................51

VI. The Roles of Entrepreneurship During Economic Recessions ....................................68

VII. Description of Variables in Panel Analysis ................................................................82

VIII. Description of Matching Variables............................................................................89

IX. The Effects of Entrepreneurship on Per Capita Income Growth .................................98

X. The Effects of Entrepreneurship on Employment Growth .........................................103

XI. The Effects of Entrepreneurship on Population Growth ...........................................105

XII. Summary of Balancing Test .....................................................................................109

XIII. Difference in Levels Between Groups After Hurricanes ........................................ 117

XIV. Difference in Slopes Between Groups After Hurricanes ......................................... 118

XV. Difference in Levels Between Groups After Recessions ..........................................120

vii
XVI. Difference in Slopes Between Groups After Recessions ........................................121

viii
 LIST OF FIGURES

Figure page

1. Different Responses of Regional Economies to External Shocks ................................. 11

2. A Schematic Diagram of Entrepreneurship and Regional Economic Resilience ..........33

3. Total Damage Cost of Hurricanes Katrina and Rita by State ........................................35

4. Changes in Labor Force of the Gulf Coast Region ........................................................36

5. Changes in Unemployment Rates of the Gulf Coast Region .........................................38

6. Real Gross Domestic Products (2006-2010)..................................................................54

7. Productivity During Recessions (1948-2009)................................................................55

8. Job Creation of Start-ups ...............................................................................................67

9. Potential Treatment and Control Groups .......................................................................86

10. A Visual Description of Interrupted Time Series Design .............................................92

11. Entrepreneurship Ratio by Treatment and Control Groups ....................................... 111

12. Map of Treatment and Control Counties ................................................................... 112

13. Trends in Per Capita Income Growth Rate ................................................................ 113

14. Trends in Employment Growth Rate ......................................................................... 115

15. Trends in Population Growth Rate ............................................................................. 116

ix
 CHAPTER I

INTRODUCTION

Regional economists pay close attention to severe social and economic risks that

hamper economic growth, as external shocks and events can offer important opportunities

to examine how regions respond to them. Given that regional abilities to manage shocks

or events are various, it is seemingly reasonable to understand regional disparities with

the concept of regional economic resilience. As unexpected and significant crises caused

by complex environments lead to a high degree of uncertainty and insecurity, the

popularity of resilience concept is increasing (Christopherson et al., 2010; Modica &

Reggiani, 2014).

While the concept of economic resilience is practically intuitive, it lacks clear

conceptual and operational definitions. Because of its ambiguous definitions, some would

suggest that it is a “fuzzy” concept (Martin, 2012; Pendall et al., 2010). In addition,

several major questions remain unanswered, including: a) why is the concept of resilience

employed? b) how can resilience be assessed or measured? c) what factors contribute to

resilience? and d) what policies should be adopted to modify and improve levels of
1
resilience? (Martin-Breen & Anderies, 2011, p. 49-50).

To tackle this gap between conceptual popularity and theoretical ambiguity, this

study examines whether entrepreneurship is an effective mechanism of resilience. For

this research purpose, this study takes some regions in the Gulf Coast areas that

experienced two different types of shocks: hurricanes in 2005 and the Great Recession in

2008-2009. If entrepreneurial activities act as a shock absorber, it is expected that, all else

being equal, a region with more entrepreneurs will show higher recovery than other

regions.

The argument suggested here departs from the previous studies on entrepreneurship.

Entrepreneurship has been considered as a substantial factor in economic development to

the extent that it is regarded as an element in the variation of regional economic

development (Acs & Armington, 2004a; Audretsch & Keilbach, 2004a). From this

viewpoint, this study expects that entrepreneurs who actively take risks and uncertainties

caused by external shocks are likely to mitigate the negative effects of disturbances.

Furthermore, this argument is supported by a conspicuous phenomenon that

entrepreneurship stands out as one of the most significant factors in the recovery of the

Gulf Coast region (Haines, 2011; Mount, 2012).

This study is differentiated from previous research in several aspects. First, this

study emphasizes the role of new firms in the context of regional economic resilience.

While extant studies have mainly focused on entrepreneurship without a consideration

about shocks, this study takes into account the disturbances. The contribution of this

2
study is elevated in that it covers two different types of shocks (i.e., natural disasters and

economic downturns). Second, three different economic outputs, including per capita

income, employment, and population growth rates, are estimated to elaborate the

measurements of economic resilience, instead of focusing on a single output. Examining

three economic outputs can shed light on the effects of entrepreneurship from varying

perspectives.

The empirical analysis of this study consists of two parts. In the first part, this

study empirically assesses the effects of entrepreneurship in regions affected by

hurricanes in 2005 and economic recessions in 2008-2009. For this purpose, this study

uses a dynamic panel data analysis that can control unobserved regional characteristics

and endogeneity. In the second part of the empirical analysis, this study examines the role

of entrepreneurship through a quasi-experiment to prove into the causal relationship

between entrepreneurship and regional economic resilience. By using propensity score

matching, the economic growth trends of two groups (high and low entrepreneurship

regions) are measured by interrupted time series analysis.

The main findings from the empirical analysis of this data can be summarized as

follows. From the panel analysis, entrepreneurship positively affects employment and

population growth in affected regions. Meanwhile, the positive effect of entrepreneurship

does not show in per capita income growth. From the interrupted time series analysis,

regions with higher entrepreneurial activities than the national ratio illustrate higher

levels of employment and population than regions with lower entrepreneurial activities

after hurricanes. However, the difference between two regions disappears when the
3
economic recession negatively affects both regions.

The remainder of this study is organized as follows: Chapter 2 suggests two

hypotheses from the literature review on regional economic resilience and

entrepreneurship; Chapter 3 introduces research designs with variables and

methodologies to examine whether entrepreneurs can positively contribute to regional

economic resilience; Chapter 4 illustrates the empirical results of dynamic panel and

quasi-experiment analyses; and Chapter 5 concludes with policy implications that

increase regional resilience and discusses limitations of this research.

4
 CHAPTER II

REGIONAL ECONOMIC RESILIENCE AND ENTREPRENEURSHIP

2.1 The Concept of Regional Economic Resilience

Resilience was introduced in the early 1970s by Holling (1973), who emphasized

complex and complicated realities in ecological systems. The idea of resilience has been

applied to numerous academic fields, including political science, sociology, history,

disaster planning, urban planning, psychology, and international development. Due to its

broad application, the concept of resilience has been promoted for use in more integrated

approaches (Miller et al., 2010). At the same time, too many definitions from various

academic fields evoke confusions and critiques about “resilience of what to what”

(Carpenter et al., 2001, p. 767).

Given that there are various definitions of resilience, the studies can be categorized

into two different concepts of regional economic resilience based on their assumptions of

equilibrium (Pike et al., 2010). Some researchers believe that there is a single equilibrium,

5
such as that which pertains to the engineering resilience concept (Briguglio et al., 2009;

Hill et al., 2008), while others assume that there are multiple equilibria, such as that

which pertains under ecological resilience (Chapple & Lester, 2010; Martin, 2012). Since

the measurement of economic resilience depends on how the concept is defined, the

differences between definitions necessitate clear explanations.

This study is based on the concept of ecological resilience because regions affected

by hurricanes and economic recessions have attempted to change their economic bases

and environments after the shocks. Moreover, the impacts of both shocks were neither

temporary nor negligible to the regional economy. In this case, it is reasonable to assume

that there are multiple equilibria, instead of focusing on a return to a previous growth

path.

However, it is still important to understand the difference between engineering and

ecological resilience concepts. Table I summarizes the two different types of resilience

based on the equilibrium-based approaches. The concepts of engineering resilience and

ecological resilience are differentiated in terms of the number of stable states, attributes

of equilibrium, magnitude and length of shocks, measurement, and focus of resilience.

From this table, it is inferred that regional economic resilience can be addressed in a

different way according to how resilience is defined.

The engineering resilience concept applied in economies has implications in terms

of what systems do to return to the previous equilibrium. Following this concept, Hill et

al. (2008) define regional economic resilience as “the ability of a region... to recover

6
successfully from shocks to its economy that either throw it off its growth path or have

the potential to throw it off its growth path” (p. 4). Under the concept of engineering

resilience, some regional economic systems are regarded as resilient if they return to or

exceed their previous equilibrium after disturbances and shocks (Hill et al., 2008).

Table I. Different Concepts of Resilience

Resilience
Engineering resilience Ecological resilience
Assumption
Equilibrium Single equilibrium Multiple equilibria
Non-linear, complex, and self-
Characteristics of Linear, predictable, and
organizing state with high
stability constant state
uncertainty and discontinuity
Effects of shocks
Transitory and temporary Permanent and persistent
on a system
Time to return to its previous
Magnitude of disturbances and
Measurements equilibrium and resistance to
shocks that can be absorbed
shocks
Focuses of Sustaining efficiency of Maintaining existence of
resilience function function
Note: Differences between engineering and ecological resilience are identified based
on previous studies of Holling (1996; 1973), Folke (2006), Gunderson (2000), Martin
(2012), Pimm (1984), and Simmie & Martin (2010).

Pendall et al. (2010) suggest that engineering resilience might be enough for

analyzing resilience at a regional level with the following statement:

“Regional growth in output and population or rates of unemployment, poverty, or

labor force participation can be considered at least partly equilibrium phenomena. Since
all these subjects offer significant interest for researchers and policy-makers alike, the
single equilibrium version of resilience offers one important and legitimate metaphor for
understanding regions” (p. 73).

The notion of Pendall et al. (2010) is consistent with the idea that return to

equilibrium after some shocks is not unusual (Hill et al., 2011). For instance, engineering
7
resilience is applied to the rebound of cities or regions that experienced severe natural or

man-made disasters (Vigdor, 2008). At the same time, engineering resilience can also be

employed to explain regional economies illustrating recovery after economic recessions

(Fingleton et al., 2012). In both natural disasters and economic recessions, engineering

resilience provides a useful framework to examine whether regions that experience any

disturbances have the capability to return to their previous growth paths with various

economic indicators.

However, engineering resilience has several limitations. First, it does not admit that

a region with an altered path may be considered as a resilient region1 (Pendall et al.,

2010). Second, engineering resilience does not provide any clues about how regional

resilience can be improved or changed (Simmie & Martin, 2010). Third, external shocks

or disturbances might not be transitory. Rather, the shocks can have permanent effects on

a regional economy. Due to these drawbacks, several studies have vigorously criticized

engineering economic resilience as unhelpful or not useful in making regions more

resilient (Christopherson et al., 2010; Martin, 2012). This critique leads to the alternative

of ecological resilience underlying the evolutionary approach of regional economies.

In contrast to engineering resilience, ecological resilience suggests that a system

can have multiple equilibria by shifting its structure. While engineering resilience focuses

on returning to normalcy, ecological resilience assumes a continual adjustment to find

1
Pendall et al. (2010) use Pittsburgh as an example to explain the weak point of engineering resilience.
From the perspective of engineering resilience, Pittsburgh might not be a resilient region because it failed
to return to its previous equilibrium after World War II. However, Pittsburgh was nominated as one of the
most resilient regions due to a successful change of its economic structure from the steel industry to a
center of high-tech innovation (White House, 2009).

8
sub-optimal equilibrium2 (Pendall et al., 2010). In other words, the system can move to a

different domain or state if a shock can push a system beyond its threshold domains

(Martin, 2012). This is in contrast to engineering resilience’s assumption that there is a

single and global equilibrium.

Furthermore, resilience in multi-equilibria assumes that the system tends to be

complex, non-linear, and self-organizing with high uncertainty and discontinuity (Berkes

& Folke, 1998, p. 12). Under this system, resilient regions are supposed to maintain basic

function with flexibility and adaptability (Reggiani et al., 2002). In this regard, ecological

resilience can be measured by the magnitude of the shocks that can be absorbed before

the system changes its structure (Gunderson, 2000; Holling, 1973; Simmie & Martin,

2010).

One of the distinctive features of ecological resilience is that it emphasizes the

process of identifying a new equilibrium. Martin (2012) suggests that two concepts are

essential to understand how regions deploy new growth paths including (a) hysteresis and

(b) lock-in in the regional economy. In addition to Martin’s work, the concepts of

adaptation and adaptability are complementary to the equilibrium-based approach by

explaining regional variations of resilience in the absence of external shocks (Pike et al.,

2010).

Table II summarizes the definitions of main terms that are related to ecological

2
Sub-optimal equilibrium is based on the evolutionary approach that explains there is no single best
equilibrium, but multiple paths that do not guarantee optimal changes (Pike et al., 2010).

9
resilience. First, the concept of “hysteresis” is highly associated with the shift of a growth

ceiling or growth rate caused by external shocks. Romer (2001) defines this situation as

“where one-time disturbances permanently affect the path of the economy” (p. 471). Like

a memory of shocks, the changed equilibrium is not supposed to return to the previous

status even if the disturbances or shocks have passed (Fingleton et al., 2012). Thus, it can

be inferred that transitional shocks can have a permanent effect (Blanchard & Summers,

1986; Ottaviano, 2003).

Table II. Key Terms Related to Ecological Resilience

Concept Definition
Hysteresis A situation “where one-time disturbances permanently affect the path of
the economy” (Romer, 2001, p. 471).
Lock-in “A self-reinforcing process of collective behavior by which an economic
system converges to a history-dependent equilibrium state from which it
cannot escape” (Martin, 2010, p. 8).
Adaptation “The decision-making process and the set of actions undertaken to
maintain the capacity to deal with future change or perturbations to a
social-ecological system without undergoing significant changes in
function, structural identity, or feedbacks of that system while
maintaining the option to develop” (Nelson et al., 2007, p. 397).
Adaptability “The dynamic capacity to effect and unfold multiple evolutionary
trajectories, through loose and weak couplings between social agents in
place, that enhance the overall responsiveness of the system to
unforeseen changes” (Pike et al., 2012, p. 61)

To help understand hysteresis, Figure 1 illustrates four types of stylized regional

economies (Martin, 2012). When a shock strikes a region, it can lower the economic

output or employment instantly. One can imagine that some regions cannot return to their

previous growth path after experiencing an external shock (1a and 1b). A particular type

of region shows its growth rate recovering to the pre-shock status, but it fails to return to

its growth paths (1a). Meanwhile, a shock can lower both the growth rate and the growth

10
ceiling (1b). The negative hysteretic effects of shocks can permanently lower the regional

growth rate and/or ceiling.

Figure 1. Different Responses of Regional Economies to External Shocks

Source: Martin (2012, p. 9-10).

Note: (a) a region showing permanent decrease in level, but recovery to the
previous growth rate; (b) a region showing permanent decrease in level and a lower
growth rate; (c) a region showing an increase in level and recovery to the previous
growth rate; and (d) a region showing a continuously higher growth rate.

In contrast, other regions might show positive hysteretic effects of shocks (1c and

1d). Even though regions can temporarily have lower economic output or employment

because of the effects of a shock, they may later show a rapid growth rate compared to

the pre-shock level. The positive hysteretic effect would change its growth ceiling with

11
the same growth rate (1c), or sustain a higher growth rate (1d). Unlike the previous two

types of regions, the positive hysteretic effects in the regions exhibit a highly resilient

economy. According to Martin (2012), the sources of the positive hysteric reaction may

come from initial conditions related to new firm formations, opportunities to improve

productivity, and positive business expectations (p. 9).

The hysteresis effects of exogenous shocks are applicable to natural disasters and

economic downturns. For instance, Chang (2010) analyzes the recovery from the Kobe

earthquake that occurred in Japan in 1995. Before deciding whether the region is

recovered from the severe earthquake, Chang (2010) defines recovery based on the

ecological resilience concept emphasizing a new stable state. By showing the trend of

several indicators including population, business, economic production, income, and port

traffic, the study obviously illustrates that the effects of the earthquake permanently and

negatively lowered the regional economy growth trajectory compared to the pre-

earthquake level.

Not only natural disasters but economic recessions can negatively and permanently

affect a regional economy as well. Fingleton et al. (2012) use U.K. panel data for the

period of 1971-2010 to prove that economic recessions can have negative hysteric effects

on regional employment. Moreover, they also show that the negative hysteresis of

recessions can affect surrounding regions through interregional employment linkages.

Similarly, Ball (2014) corroborates that most OECD countries have experienced

hysteresis after the global recession between 2008-2009. The actual output was not only

decreased, but the growth rate was also lower than the pre-recession status.
12
 The empirical studies mentioned above indicate that the adverse effects of shocks

can be long-lasting as shown in Figure 1 (a) or (b). The reason for hysteresis is that

external shocks can persistently affect endogenous factors including capital accumulation,

human capital, and investment in innovation (Ball, 2014; Martin, 2012). As various

external shocks would affect these factors, a regional economy can experience downward

hysteric effects of natural disasters and recessions.

Second, the hysteresis causes a “lock-in” effect (Ottaviano, 2003). The idea of

lock-in describes how the entry of a new system might be frustrated in a stable

equilibrium (Arthur, 1989; David, 2001). More simply, negative lock-in is a status where

endogenous change does not occur (David, 2001; Martin & Sunley, 2006). Without

external shocks and forces, a new system cannot enter into a region with a stable

equilibrium; hence, a regional path is finally locked in (David, 2001). Likewise, path

dependence can cause a narrow choice set in decision-making (North, 1990).

Once a particular path of economic growth is established in a regional economy, it

is likely that path dependence will impede a region’s response to external technology

shocks and unexpected disturbances because of rigidity and inflexibility (Arthur, 1989;

Martin & Sunley, 2006). It is regarded as a negative lock-in effect that hampers

remobilization or redeployment of a new path (Martin & Sunley, 2006). Thus, it is

reasonable to expect that overcoming the negative lock-in with the presence of external

shocks is a significant factor in determining regional economic growth. If a region fails to

escape from the lock-in path of development, it loses regional competitiveness a lack of

economic resilience.
13
 Pike et al. (2010) argue that regions with negative lock-in should increase

adaptability to be resilient rather than adaptation. Adaptability is regarded as regional

capability to deploy multiple growth paths by breaking the previous path (Pike et al.,

2010). Regions with a high degree of adaptability can increase their responsiveness to

unexpected disturbances and shocks. Meanwhile, adaptation refers to regional tendency

to cope with disturbances without significant changes in systems or functions (Nelson et

al., 2007). In this sense, adaptability is distinguished from adaptation that focuses on

regional tendency to sustain its previous growth pattern or state.

Under engineering resilience, it is understood that adaptation is an effective

strategy, but it is not a desirable one from an ecological resilience perspective (Simmie &

Martin, 2010). What can be drawn from Pike et al. (2010)’s work is that resilient regions

are supposed to nurture their adaptability instead of adaptation. With this distinction

between adaptation and adaptability, resilient regions with a high degree of adaptability

are expected to illustrate desirable growth paths because these regions continuously

conceive new strategies to increase their capability to respond to some changes or

disturbances.

From the discussion about hysteresis and adaptability, it is possible to imagine how

resilient regions respond to shocks or slow-burn changes. On the one hand, resilient

regions are supposed to mitigate the hysteresis effect when disturbances continuously and

negatively affect a regional economy. If possible, resilient regions that experience shocks

would make attempts to increase their economic growth rate or level as shown in Figure

1 (c) and (d). On the other hand, regions should avoid a negative lock-in by increasing
14
their adaptability even when they do not experience any exogenous shocks or

disturbances.

In a normative manner, resilient regions are desirable. One of the important issues

to be addressed is the factors affecting regional resilience. Numerous studies have

attempted to describe the main features of resilient regions (Capello et al., 2015; Chapple

& Lester, 2010; Chistopherson et al., 2010; Holm & Ø stergaard, 2015; Martin, 2012;

Simmie & Martin, 2010). The previous studies enable conjecture as to what factors can

contribute to regional economic resilience.

Table III specifies the features of economically resilient regions that experienced

shocks (i.e. economic recessions). Previous studies have measured employment, outputs,

and income to analyze the variation of regional resilience. It is quite interesting that these

studies have identified some factors that have been regarded as important elements in

endogenous growth theory. Resilient regions are assumed to have more skilled labor and

human capital, regional innovation activities, diverse economic structures, and

entrepreneurship than less resilient regions.

Table III. Features of Resilient Regions

Measurement of
Author (s) Factors of resilient regions
resilience
Chapple & -Average earnings -Retaining and nurturing high-skilled labor force in a
Lester per worker knowledge-based economy
(2010) -Middle-income -Attracting immigrants who can bring new skills and
group knowledge
-Restructuring some manufacturing industries
Simmie & -Employment -High-tech and knowledge-based economy driving
Martin growth innovation
(2010) -Entrepreneurial activities through new firms
-University research
15
 Martin -Employment -Diversity of economic structure
(2012) change -Concentration of production industry affecting
regional sensitivity
Capello et -GDP growth rate -High value-added activities
al. (2015) -Productive production factors and urban
infrastructures
-Active networks among firms and industries
Holm & -Employment -Active businesses of small and young ICT service
Ø stergaard growth rate (ICT companies
(2015) industry) -Urbanized regions & diverse industry

To be specific, resilient regions are likely to promote long-term growth by

increasing human capital and innovation. As an essential factor of endogenous economic

growth, human capital can facilitate regional competitiveness by increasing productivity

and innovation (Borggren & Eriksson, 2014). The concentration of human capital also

helps knowledge spillovers that can boost further regional productivity and economic

growth (Abel & Gabe, 2011). In addition to human capital, resilient regions illustrate an

ability to create new knowledge and frontier technologies from research activities and

investments of universities and institutes (Simmie & Martin, 2010).

Entrepreneurship is also indicated as an important element in regional resilience

studies (Martin, 2012; Simmie & Martin, 2010). Newly created knowledge from

universities and R&D activities are expected to be commercialized through

entrepreneurial activities. Because new knowledge cannot be automatically transformed

to economic knowledge (Arrow, 1962), entrepreneurs enhance the spillover of knowledge

in the form of products and services equipped with new technologies (Audretsch &

Keilbach, 2004a). Thus, it is argued that resilient regions are not only able to create new

knowledge, but they can also stimulate entrepreneurs to engage in commercialization of

16
knowledge and innovation (Christopherson et al., 2010; Simmie & Martin, 2010).

Also, many studies have argued that diverse industrial structures help regions to

absorb adverse effects of external disturbances (Davies & Tonts, 2010; Holm &

Ø stergaard, 2015; Martin & Sunely, 2015). In particular, diversified economic structures

are beneficial in that a product cycle has different points and peaks (Chapple & Lester,

2010). Diverse economies are prone to be resistant to external shocks by spreading risks

of various shocks over industries, which is regarded as the “portfolio strategy” (Frenken

et al., 2007, p. 686; Martin, 2012, p. 12). Martin and Sunley (2015) further argue that

diverse industrial structures help regions decrease their vulnerability and increase the

probability to rebound from a shock.

Meanwhile, it is noteworthy that even regions with fewer factors mentioned above

can grow after some shocks because the pre-shock status does not determine a region’s

post-shock economic growth path. As Chapple and Lester (2010) and Christopherson et

al. (2010) argue, the role of paths is only contingent. An important issue here is whether

regions can seek new growth paths by utilizing and focusing on the endogenous factors

that lead to long-term economic growth. In this regard, the regional capability to adjust

and moderate the regional assets and capital to adapt to changes induced by shocks is

critical.

Even though the concept of ecological resilience can suggest a framework to

understand how regions respond to exogenous shocks based on the evolutionary approach,

it has two main drawbacks: limited models and empirical data supporting the existence of

17
multiple equilibria (Reggiani et al., 2002). As discussed above, the empirical description

of ecological resilience requires having rich empirical data gathered in a consistent and

reliable manner to see the multiple paths and equilibria (Chapple & Lester, 2010). As

Reggiani et al. (2002) point out, it is difficult to measure ecological resilience due to

“high-dimensional dynamics systems with a consequential number of parameters” (p.

217).

Moreover, previous studies based on ecological resilience have limitations in

elaborating detailed factors that help regions find new economic growth paths. As

previous literature has mainly conducted case studies to examine regional economic

resilience, the suggested factors affecting resilience are restricted to specific conditions.

This limitation can be understood by the fact that the long-run trajectories of regional

economic outputs are the complex outcome of structural factors and processes (Martin,

2012). For this reason, specific factors that can increase regional economic resilience are

still in question.

Despite these shortcomings, ecological resilience remains meaningful because it

provides a useful framework to examine how regions respond to shocks. By assuming

hysteric effects of shocks and multiple equilibria, ecological resilience suggests that

resilient regions would adapt themselves to changes and find ways to increase their

competitiveness. Compared to engineering resilience, ecological resilience suggests a

possibility that regions are able to grow more even after disturbances, not only focusing

on recovery.

18
 In this regard, this study examines the role of entrepreneurship from the ecological

resilience perspective. The Gulf Coast regions, where severe natural disasters and deep

recessions occurred, can be good research areas because these regions have endeavored

to grow after two different shocks by changing their economic structures. In this process,

this study assumes that entrepreneurship facilitates the recovery process in the aftermath

of hurricanes and economic recessions. The following subsection describes why

entrepreneurship matters in the recovery as well as changes in the growth paths based on

the literature on entrepreneurship.

2.2 Linking Entrepreneurship to Regional Economic Resilience

2.2.1 Entrepreneurial Orientations and Opportunities

The purpose of this section is to develop the logical reasoning behind the claim that

entrepreneurship is important to regional economic resilience. In recent years,

entrepreneurship has been regarded as an important element not only of regional

economic growth itself, but of economic resilience (Christopherson et al., 2010; Simmie

& Martin, 2010). However, there is a little discussion of (a) how entrepreneurs embark on

new firms and innovations and (b) why they matter to regional resilience. This study

argues that entrepreneurial orientations and opportunities can be the answer to the former

issue. Meanwhile, the relationship between entrepreneurship and regional economic

growth can be a hint for the latter issue because entrepreneurship can increase a region’s

competitiveness through the enhancement of productivity, job creation, and innovation.

19
 Before unfolding the entrepreneurial orientation and opportunities, it is necessary

to define entrepreneurship. In this study, entrepreneurs refer to economic agents who

discover, create, and exploit future goods and services (Venkataraman, 1997, p. 120).

Following this definition, entrepreneurship is not necessarily limited to new firms. Rather,

it inclusively covers the set of individual traits and behaviors in those looking for new

opportunities and actions for entrepreneurial profits. As Wennekers and Thurik (1999)

suggest, intrinsic attributes of entrepreneurship are “new entry and newness” (p. 33)

which can exist in both new firms and incumbents.

As briefly suggested, entrepreneurial orientation and opportunities explain how

individuals start their own businesses and innovations. Entrepreneurial orientation refers

to the strategy-making practices embedded in a firm’s ongoing processes and

organization culture (Dess & Lumpkin, 2005). More importantly, entrepreneurial

orientation focuses on how new firms are established, in contrast to entrepreneurship

itself which concentrates on the content of entrepreneurial decisions (Lumpkin & Dess,

1996; 2001). In addition to entrepreneurial orientation, this study suggests various

sources of entrepreneurial opportunities later.

When environments and economic conditions significantly change because of

external shocks, entrepreneurial characteristics and orientations are substantial in

responding to the events (Marino et al., 2008). For this reason, it is imperative to

understand individual features that can lead to new firms and innovations. Lumpkin and

Dess (1996) describe entrepreneurial orientation that can be categorized by five

dimensions, “(1) autonomy, (2) innovativeness, (3) risk-taking, (4) proactiveness, and (5)
20
competitive aggressiveness” (p. 137).

First, autonomy enables entrepreneurs to actively seek opportunities and advantage

behaviors (Ireland et al., 2003; Lumpkin et al., 2009). Lumpkin et al. (2009) suggest that

autonomy is one of the significant elements that help employees find new opportunities

and resources to increase competitiveness. Furthermore, autonomous employees are

prone to create new firms when they realize new opportunities (Lumpkin et al., 2009).

Hence, independent actions and freedom are critical factors to individuals who promote

creative opportunities and new ventures (Lumpkin & Dess, 1996).

In the context of resilience, freedom of individual agents refers to “the capacity to

make the right decisions and respond correctly to external problems” (Joseph, 2013, p.

46). Autonomous orientation leads entrepreneurs to make quick and key decisions to

supply and provide new markets with innovative products in the aftermath of shocks (Li

et al., 2009). In addition, autonomy of entrepreneurship can be a driving force of success

because it makes entrepreneurs actively find effective ways to survive and seek new

knowledge (Gartner et al., 1999; Li et al., 2009).

Secondly, innovativeness is one of the critical dimensions of entrepreneurial

orientation. In entrepreneurship research, innovativeness is highly related to creation or

recognition of means, ends, or both of products and services (Eckhardt & Shane, 2003).

Muller and Thomas (2001) argue that the internal locus of control and innovative

orientation can be important factors in establishing new firms. In other words,

innovativeness plays as a prerequisite for making a profit by introducing new ideas and

21
implementing competitive strategies.

It is worth noting that innovation does not necessarily mean new products or

services in markets. It relies on the fact that entrepreneurship is engaged in innovation

through the following strategies: “(a) introduction of new goods, (b) introduction of new

methods of production, (c) opening of new markets, (d) opening of new sources of supply,

and industrial organization” (Carland et al., 1984, p. 357). Likewise, innovative-oriented

entrepreneurs can help regions respond to social and economic changes by adopting new

ends and means (Foster, 2007).

Thirdly, risk-taking refers to a willingness to devote resources to projects or

opportunities where uncertainties and the cost of failure are high (Shane et al., 2003;

Wilkund & Shepherd, 2003). Dess and Lumpkin (2005) suggest the different types of risk

in business, financial, and personal dimensions (p. 152). Business risk-taking is related to

uncertainty about whether a new business can bring success or failure, because

entrepreneurs emerge in untested markets, or have unproven technologies. Financial risk-

taking is related to raising loans to start new ventures or projects that are uncertain.

Finally, personal risk-taking indicates CEOs’ decisions to embrace risk as a mean of

strategic action. In particular, decision-making of executives can have significant impacts

on their careers as well as their whole companies.

Entrepreneurs confront and take risk since the entrepreneurial process itself cannot

be “absolutely no risk” (Lumpkin & Dess, 1996, p. 144; Shane et al., 2003). Even when

the degree of uncertainty increases after certain shocks, entrepreneurs start their own

22
businesses or innovations by taking the various types of risks mentioned above. Not all

entrepreneurs prefer risky projects or investments, but risk-taking is an intrinsic aspect of

entrepreneurship (Lumpkin & Dess, 1996).

The fourth dimension of entrepreneurial orientation is proactiveness. This reflects

entrepreneurs’ willingness to promote proactive and aggressive strategies to change

market environments (Lumpkin & Dess, 1996). Proactiveness-oriented entrepreneurs are

the first movers in markets in that they make or affect market environments and trends.

The proactiveness of entrepreneurship is distinguished from competitive aggressiveness

explaining the responsiveness of entrepreneurs to the market trends and customers’

demands (Lumpkin & Dess, 1996).

Likewise, entrepreneurs are supposed to have “leadership” by introducing new

ideas to goods and markets, which is regarded as their main role (Baumol, 1993, p. 4).

For this reason, entrepreneurs continuously monitor and scan their environment by

exploring the latent and unarticulated information of customers and competitors (Keh et

al., 2007). In doing so, entrepreneurs are able to be aware of profit opportunities coming

from some exogenous shocks or changes in market trends.

Finally, once entrepreneurs initiate new firms, they endeavor to increase

competitive advantage by attempting several strategies to respond to their changing

environments (Lumpkin & Dess, 1996). Competitive advantage refers to “a value

creating strategy not simultaneously being implemented by any current or potential

competitors” (Barney, 1991, p. 102). Competitive aggressiveness of entrepreneurs can be

23
found in unusual and unconventional ways of competition in markets (Lumpkin & Dess,

1996).

To take competitive advantage, entrepreneurs would choose relevant strategies with

an understanding of the environment (Porter, 1991). Under hostile environments where

competition is severe due to “legal, political, and economic constraints and low customer

loyalty” (Rosenbusch et al., 2013, p. 636), entrepreneurs would attempt to dominate

competitors by combining proactiveness and innovation (Covin & Covin, 1990). This

competitive aggressiveness of entrepreneurs can be stronger in complex environments

while large firms rarely try innovative or proactive strategies (Rosenbusch et al., 2013).

Entrepreneurial orientations pave the way to new opportunities (Alvarez &

Busenitz, 2001). Following Casson (1982)’s study, Shane and Venkataraman (2000)

suggest that entrepreneurial opportunities are found in some situations “in which new

goods, services, raw materials, and organizing methods can be introduced and sold at

greater than their cost of production” (p. 220). According to Eckhardt and Shane (2003),

entrepreneurial opportunities are assumed to involve creative means and/or end

frameworks that are not utilized until entrepreneurs perceive them.

Though sources of entrepreneurial opportunities are various among individuals,

this study focuses on the following aspects: entrepreneurial alertness, informational

asymmetry, new knowledge, and changes in social, political, and demographic factors

(Acs & Armington, 2006; Davidsson & Honig, 2003; Eckhardt & Shane, 2003; Kirzner,

1997; Shane, 2000 Shane & Venkatraman (2000). Table IV describes the sources of

24
entrepreneurial opportunities.

Table IV. Sources of Entrepreneurial Opportunities

Sources of
Dimension Description Author (s)
opportunities
Entrepreneurial perception and Kirzner (1997);
Entrepreneurial cognitive process that can detect
Shane &
alertness market errors Venkatraman (2000)
Supply Tacit and explicit knowledge of
Information Davidsson & Honig
side entrepreneurs stimulating the
asymmetry (2003); Shane (2000)
perception of new opportunities
Utilizing new knowledge with Acs & Armington
New
their skills and abilities to make (2006); Eckhardt &
knowledge
new goods and services Shane (2003)
Changes in Exogenous events and shocks
Acs & Armington
Demand social and that can change consumers’
(2006); Eckhardt &
side demographic preferences and purchasing
Shane (2003)
factors habits

The first source of opportunities can be found in entrepreneurial alertness. For

Kirzner, entrepreneurial alertness can be understood as the “equilibrative tendency of

markets” to correct market errors (Kirzner, 1999, p. 5). Kirzner (1997) explains that the

best use of resources is realized through an ever-changing equilibrium. By assuming the

disequilibrium of markets, what entrepreneurs do is buy resources and products at “too

low prices” and sell them “too high” (p. 70). Likewise, entrepreneurs correct the errors in

the price and quantity. Hence, Kirznerian entrepreneurial opportunities can be found in

“shortages, surplus, and misallocated resources” (Shane & Venkatraman, 2000, p. 221).

Second, entrepreneurial alertness for opportunities is highly associated with the

phenomenon that knowledge in society is unevenly distributed. Why can some people

recognize opportunities and misallocations of resources and not others? Venkataraman

25
(1997) attributes the reason to prior knowledge of entrepreneurship. Since the possession

of prior knowledge that is useful to perceiving opportunities varies among agents, the

prior knowledge plays a significant role as a trigger (Shane & Venkataraman, 2000;

Venkataraman, 1997).

As Shane and Venkataraman (2000) assert, information asymmetry is a

precondition of entrepreneurial opportunities. In other words, entrepreneurial

opportunities cannot exist if all cognitive positions of agents in respect to resources and

the market are identical to each other. Shane (2000) specifies the three major prior

knowledge areasthat can affect discovery of entrepreneurial opportunities: “prior

knowledge of markets, prior knowledge of ways to serve markets, and prior knowledge

of customer problems” (p. 452). As these specific points of knowledge possessed by

some people make a knowledge corridor, the information asymmetry can create

entrepreneurial opportunities (Ardichvili et al., 2003; Shane, 2000).

The third source of entrepreneurial opportunities is new knowledge and technology

(Acs & Varga, 2005; Shane & Venkataraman, 2000). It has been argued that new

knowledge can significantly affect economic growth (Acs & Armington, 2006). Kirzner

(1985) argues that the change of economic outputs after the emergence of new knowledge

highly depends on the amount of entrepreneurial opportunity. It means that new

knowledge and technologies created by universities and research labs generate

entrepreneurial opportunities. For this reason, industries with a huge amount of

investment in knowledge creation are prone to large numbers of startups (Audretsch &

Lehmann, 2005). Thus, new knowledge and technology become opportunities for
26
entrepreneurs who recognize their value and exploit them for profits (Qian et al., 2013;

Shane & Venkatarman, 2000).

The last source of entrepreneurial opportunities is when there are any significant

changes in markets and societies. It is obvious that these changes provide useful

information to entrepreneurs for business opportunities (Eckhardt & Shane, 2003; Shane

& Venkataraman, 2000). Some people can earlier recognize or obtain new information

that comes from external changes than others, and this recognition can lead to good

opportunities to create new products or services (Eckhardt & Shane, 2003; Shane &

Venkataraman, 2000). While the aforementioned sources of entrepreneurial opportunities

impact supply side, the social changes in taste, culture, perceptions, and technological

possibilities affect the demand side (Eckhardt & Shane, 2003; Kirzner, 1997). By

discovering the demand of customers, entrepreneurs should be able to address new needs

of consumers and new market worth (Rumelt, 2005).

To sum up, entrepreneurs motivated by autonomy, innovativeness, risk taking,

proactiveness, and competitive aggressiveness can recognize and create opportunities to

make a profit in markets. Previous literature has identified entrepreneurial opportunities

as disequilibrium in markets, information asymmetry, new knowledge and technology,

and substantial changes in social and economic environments. These entrepreneurial

orientation and opportunities are originated from the idiosyncratic perception and

motivations of individuals.

Taken a step further, the importance of entrepreneurial orientation and

27
opportunities can increase in post-shock conditions. After a certain shock hits a region,

there might be unexpected problems or needs in the regional economy. As Hsieh et al.

(2007) assert, entrepreneurial opportunities are indispensable with the process of problem

solving. When entrepreneurs face unexpected problems caused by a shock, they try to

find solutions based on their beliefs and ideas. In this sense, entrepreneurial orientations

and opportunities can mitigate some negative effects or problems caused by unexpected

external shocks.

2.2.2 Contribution of Entrepreneurship to Economic Growth

The next step is to consider why entrepreneurship matters to regional economic

resilience. It is difficult to find studies demonstrating what entrepreneurs do in post-shock

conditions. However, extant literature on the roles of entrepreneurship in regional

economic growth can bridge the gap between entrepreneurship and economic resilience.

Because entrepreneurship has been considered as one of the primary engines of economic

growth, we can infer what entrepreneurs can contribute to regional economic resilience.

Previous entrepreneurship theory and empirical studies have shed light on the role

of entrepreneurship in productivity (Acs & Storey, 2004; Aghion et al., 2004; Audretsch

& Keilbach, 2004a; Van Praag & Versloot, 2007), innovation (Acs & Audtretsch, 1987;

Van Stel et al., 2005) and employment (Acs & Armington, 2004a; Haltiwanger et al.,

2013; Van Stel & Storey, 2004). Based on the previous research describing positive

aspects of entrepreneurship, it is expected that entrepreneurship can facilitate regional

rebound from shocks and find new strategies fitted with regional economic conditions.

28
 The first strand of literature linking entrepreneurship to regional economic growth

is about increasing productivity. Entrepreneurship enhances productivity by reallocating

resources (Acs & Storey, 2004). It is assumed that the misallocation of resources leads to

lower output per worker and total factor productivity (Hsieh & Klenow, 2009; Restuccia

& Rogerson, 2008). Reallocation of resources through entrepreneurship means that less

productive businesses will be replaced by new and more productive firms, and this

process facilitates an increase in productivity (Brandt et al., 2012; Foster et al., 2006;

Fritsch & Mueller, 2004; Haltiwanger, 2011).

With the economic churning process accompanying the creation of new businesses

and the closing of less productive businesses, a dynamic efficiency of resources

allocation can occur. Haltiwanger (2011) describes why churning processes are necessary

to improve productivity with young surviving establishments. Given that firms actively

enter or exit, which is called “up-or-out dynamics”, young surviving firms not only grow

faster, but they also exhibit higher productivity than incumbents once they survive

(Haltiwanger, 2011, p. 27). Therefore, the up-or-out dynamics of young firms can

contribute to the productivity growth.

Another way to increase productivity through entrepreneurship is to intensify the

degree of competition (Aghion et al., 2009; Andersson et al., 2012; Karlsson & Johansson,

2006). As Porter (1998; 2000) argues, competition is desirable to enhance productivity as

well as productivity growth. Given that the number of firms increases with entrants,

incumbents have motivation to enhance their productivity to be free from the competition.

In particular, the threat of entrants is critical to firms near the technological frontier
29
(Aghion et al., 2009). Consequently, the virtue of entrepreneurship is that it can make

incumbents increase their productivity and performance through elevated competition

(Disney et al., 2003).

The second strand of literature is about entrepreneurship implementing innovation.

Innovation is significantly involved in entrepreneurial activities because entrepreneurship

represents new things in production and products (Hitt et al., 2001). New firms are

regarded as a common method to commercialize opportunities that have not been

discovered by incumbent firms (Acs & Armington, 2006; Renski, 2011). In short,

entrepreneurial activities are primarily oriented around innovation that can lead long-term

economic growth (Drucker, 1985).

Endogenous growth theory explains that economic growth is determined by

technological innovation and knowledge (Romer, 1986). In this regard, entrepreneurs

promoting innovation and the commercialization of new knowledge are indispensable to

innovation. Unlike large firms that do not promote new technology because of

uncertainty and risk, entrepreneurs actively take these uncertain technologies and develop

them as commercialized goods and services (Acs et al., 2009).

Then, why are entrepreneurs prone to embark upon innovative activities? It is well

known that small firms have disadvantages coming from economies of scale including a

lack of financial materials and technological resources to conduct R&D for innovation

(Rothwell, 1989). To offset the disadvantages of small firms, entrepreneurs focus on

innovation and their competitiveness by utilizing their flexibility and short

30
communication lines (Nooteboom, 1994).

It is obvious that entrepreneurial activities focusing on innovation are conspicuous

in some industries and sectors. The efforts of entrepreneurs in innovation are more likely

found in high-tech industries where newness and rapid commercialization of technologies

are critical (Rothwell, 1989). This kind of industry is characterized by a high level of

industrial dynamism3 (Thornhill, 2006). Entrepreneurial activities oriented by proactive

innovations are more fitted to the dynamic environments of high-tech industries, rather

than mature industries where cost-reduction is important.

The final strand of literature about entrepreneurship in regional economic growth is

about job creation. Acs and Arminigton (2006) suggest that the role of entrepreneurship

in job creation results from firm births and young establishments (p. 16). A sizable

number of studies have shown that entrepreneurs and small firms can positively affect job

creation if they survive in a market (Acs & Armington, 2004b; Ashcroft & Love, 1996;

Phillips, 1993). In this case, entrepreneurs are expected to create more jobs than

incumbents.

However, the role of entrepreneurship in job creation is inconclusive (Van Stel &

Storey, 2004), because empirical evidence varies, depending on the industries, regions

studied, and measurement of entrepreneurship. For this reason, some empirical studies

have shown that small firms have a large portion of job creation because of their rapid

3
Industrial dynamism refers to the degree of instability and turbulence in markets, and found in some
industries with rapidly changing technology (Dess & Beard, 1984; Thornhill, 2006). Sharfman and Dean
(1991) suggest that the industrial dynamism can be estimated by a high level of patents reflecting
technological change.

31
growth rate, while others have concluded that the role of new firms in employment is not

significant or even negative. Thus, it is appropriate to examine the role of

entrepreneurship in job creation by considering time lags, size, and age of firms.

An early stream of research about the effects of entrepreneurship on job creation

focused on the short period (Fritsch, 1997). As the importance of time lags in the effect of

entrepreneurship was recognized, however, regional economists understood that the

indirect effect of entry can take more time even after entrepreneurs set their businesses in

the economy (Baptista et al., 2008; Baptista & Preto, 2011; Van Stel & Storey, 2004). The

recent trend of empirical evidence about the effect of entrepreneurship on employment is

converged into a phenomenon: the effects of entry might not be significant or positive

over 6-8 years, and it is likely to reveal a high growth rate in employment after that time

(Baptist et al., 2008; Fritsch & Mueller, 2004).

Meanwhile, the discussion about the size and age of firms is a critical issue for job

creation. Haltiwanger et al. (2013) emphasize the role of business startups and young

businesses in job creation by using U.S. Census data. They find that there is an inverse

relationship between net employment growth rates and firm sizes. To put it simply,

smaller firms have higher new growth rates compared to larger businesses. When the

authors control the age of firms, however, there is no systematic relationship between

firm size and net employment growth. With the results, Haltiwnager et al. (2013) argue

that a firm’ age is a more critical factor to net employment growth rather than a firm’s

size.

32
 Based on previous studies on entrepreneurship, Figure 2 describes the logical

framework illustrating how entrepreneurship is positively related to regional resilience.

When external disturbances and shocks occur, these events affect entrepreneurial

orientations and opportunities to some extent. People who recognize business

opportunities would start new firms based on their beliefs and perceptions. At the same

time, regions affected by exogenous shocks adjust regional economic factors in order to

adapt to the changes.

It is notable that these individual perceptions and exploitations of new

opportunities interact with regional environments, because entrepreneurial activities are

highly localized (Audretsch & Lehmann, 2005). This study assumes that regions with

more endogenous factors and entrepreneurial activities are more likely to have better

economic outputs than other regions. If entrepreneurs can contribute to increases in

productivity, innovation and job creation as discussed, they mitigate the negative effect of

shock: hence, entrepreneurship is positively related to regional economic resilience.

Figure 2. A Schematic Diagram of Entrepreneurship and Regional Economic Resilience

33
2.3 Entrepreneurial Recovery from Natural Disasters

2.3.1 Economic Impacts of Hurricanes in 2005

Hurricane Katrina is regarded as one of the strongest storms to impact the coast of

the U.S. during the last 100 years (Waple, 2005). The hurricane struck the Gulf Coast of

the United States on August 23, 2005. It caused tremendous damages in the human, social,

and psychological fabric of the city of New Orleans and along the Gulf Coasts of

Alabama, Mississippi, and Louisiana (Dolfman et al., 2007; Groen & Polivka, 2008). In

particular, roughly 80 percent of the city of New Orleans was flooded because of the

combination of strong winds, heavy rainfall, and storm surge (Dolfman et al., 2007;

Waple, 2005).

In less than a month, Hurricane Rita hit the border between Louisiana and Texas on

September 24, 2005 (Federal Emergency Management Agency, FEMA, 2005). Even

though it was less destructive than Hurricane Katrina, it was remarkable insofar as two

Category 5 hurricanes landed in the Gulf of Mexico in the same season (National Oceanic

and Atmospheric Administration, NOAA, 2005). A deadly destructive storm surge of

Hurricane Rita exacerbated the problems faced by coastal communities in Louisiana, and

the corresponding winds, rain, and tornadoes caused fatalities and severe damages from

eastern Texas to Alabama (NOAA, 2005).

According to the FEMA (2008), the estimated total damage costs from Hurricane

Katrina were about $108 billion, and the fatalities caused by the catastrophe were 1,833

in total. Private insurance companies paid about $41.1 billion for damage to homes,
34
vehicles, and business in several states (Insurance Information Institute, 2013). Compared

to other extreme shocks to the United States, Hurricane Katrina caused damage valued at

more than twice the cost compared to Hurricane Andrew in 1992 or the acts of terror at

the World Trade Center in 2001 (Insurance Information Institute, 2013).

Figure 3 illustrates the total damage costs caused by Hurricanes Katrina and Rita

by state. According to Figure 3, the impacts of Hurricanes Katrina and Rita were much

more severe in Louisiana and Mississippi than the other three states. Among the Gulf

Coast regions, Louisiana and Mississippi particularly suffered from severe flooding

caused by Hurricanes Katrina and Rita, while Alabama and Texas had less damage

compared to Louisiana and Mississippi.

Figure 3. Total Damage Cost of Hurricanes Katrina and Rita by State (in 2010 dollars)

Source: Spatial Hazard Events and Losses Database (2014).

35
 Though these two destructive hurricanes had significantly and extensively affected

the Gulf Coast regions, this study focuses on economic impacts. A number of studies

have analyzed the economic impact of Hurricanes Katrina and Rita with the changes in

level and participation rate of labor force and unemployment (Colgan & Adkins, 2006;

Dolfman et al., 2007; Groen & Polivka, 2008; McIntosh, 2008; Vigdor, 2008;

Zissimopoulos & Karoly, 2010).

Figure 4. Changes in Labor Force of the Gulf Coast Region

Source: Bureau of Labor Statistics (2014).

Note: Not seasonally adjusted.

It is reasonable to expect that the magnitude of disturbances in labor markets varies

depending on the impact of hurricanes in each region. Not surprisingly, the fluctuation of

labor force change is consistent with the damage costs. Figure 4 depicts the monthly

labor force change in the Gulf Coast region. Louisiana and Mississippi suffered from the

huge decrease of labor force after hurricanes hit. Though there was a slight increase in the

36
labor force due to construction workers (referred to as hurricane chasers) arriving from

other regions, the two states faced a low labor supply (Fussell, 2009). In July 2005, the

level of the labor force of Louisiana was 2,113,199, and it had continuously decreased to

2,004,690 in December 2005, which led to a decrease of 4 percent of labor force in the

state. In addition, Mississippi also wrestled with a decrease in its labor force.

Furthermore, the destructive hurricanes also resulted in a decrease in labor force

participation. Based on the Current Population Survey (CPS) data collected after

Hurricane Katrina, Groen and Polivka (2008) find differences in labor market

participation and unemployment rates between individuals who were not affected by

Katrina and evacuees who were affected by the hurricane. While the labor force

participation rate of residents of unaffected areas is about 66.2 percent, evacuees show

58.8 percent in participation rate. Among the evacuees, those who did not return to their

previous address after Hurricane Katrina (non-returnees) show a much lower labor force

participation rate than people who were able to return to their address (returnees) with

53.4 percent and 60.9 percent, respectively.

Vigdor (2007) also suggests that evacuees suffered from decreased working hours,

employment, and income due to Hurricane Katrina. Similar to the study of Groen and

Polivka (2008), there is a significant disparity between returnees and non-returnees

among evacuees: while returnees did not show serious adverse decreases in labor force

participation and their income, non-returnees illustrated a dramatic decrease in

employment and income. What can be observed from Groen and Polivka (2008) and

Vigdor (2007)’s work is that evacuees who encountered hurricanes experienced a low
37
probability of employment and less income after hurricanes, and the negative effects were

more severe for those who could not come back to their previous address.

One of the most important indicators for gauging the economic impact of

hurricanes would be the unemployment rate. In particular, the Gulf Coast region

experienced a high unemployment rate after the hurricanes. As shown in Figure 5, the

unemployment rate in Louisiana in December 2005 was at about 12 percent, doubled

compared to the previous year, and the same was true for Mississippi: Mississippi’s

unemployment rate increased to 9.4 percent in December 2005 (Brown et al., 2006).

Figure 5. Changes in Unemployment Rates of the Gulf Coast Region

Source: Bureau of Labor Statistics (2014).

Note: Not seasonally adjusted.

The high unemployment rates of Louisiana and Mississippi are closely related to

the region’s industrial concentration. The regions focused on the ocean economy which is

38
defined as economic activities, which “derived from the ocean or Great Lakes and its

resources being a direct or indirect input of goods and/or services to an economic activity”

(Kildow, 2006, p. vii). Before the hurricanes, the affected regions had more than a third

of national employment in the ocean economy including in “marine construction, living

resources, offshore minerals, ship and boat building and repair, coastal tourism and

recreation, and marine transportation” (Colgan & Adkins, 2006, p. 76). In particular,

Louisiana, Mississippi, and Alabama boosted 150% employment growth over 1990-2000

in tourism and recreation (Colgan, 2004).

Because of the industrial structure’s heavy reliance on the tourism and recreation

sectors, the effects of hurricanes were enormous in that this kind of industry is

dramatically affected by natural disasters, regardless of their strength and intensity

(Baade et al., 2007). In addition, the Gulf Coast regions have lost their competitiveness in

the industries of shipbuilding, marine transportation, and fishing for the past few decades.

The combination of deleterious effects of hurricanes and the dissolution of regional

competitiveness in ocean economies leads to gloomy predictions about recovery, because

tourism itself was not predicted as a sufficient sector to facilitate post-disaster recovery

(Baade et al., 2007).

To resolve the severe effects of hurricanes, one can imagine that governmental

supports and funds could help the recovery process. As the costs and magnitude of the

two hurricanes were enormous, the federal government decided to provide billions of

dollars in forms of grants, loans, and contracts to facilitate the recovery (Governmental

Accountability Office, GAO , 2010). In particular, the federal government noticed that
39
small businesses were more adversely affected, and confronted more challenges to reopen

due to financial resources (GAO, 2010). With this recognition, an SBA loan for Hurricane

Katrina was designed to help individuals and businesses recover from the disaster (GAO,

2006).

However, the SBA loan failed to aid the small business owners adequately. Only

less than 15% of applicants were approved for disaster loans for business owners during

2005 and 2006 from SBA (Lindsay, 2010)4. For the unexpected heavy applications after

Hurricanes Katrina and Rita, the SBA loan could not assist small business owners in a

timely manner (GAO, 2006). An even worse issue is that the SBA loans are a prohibitive

way of recovery insofar as the loan process requires an application with complete

information (GAO, 2010; Tozzi, 2007). Hence, a sizable number of entrepreneurs and

small business owners had to use their private savings to refinance business (Fraccastoro,

2008; Sautet, 2011).

In addition to the SBA loans programs for businesses in the wake of hurricanes,

disaster relief programs of federal governments matter during a recovery process. Given

that state and local governments usually face lower tax revenues and a lack of budget for

destroyed public infrastructure after natural disasters, federal aid is one of the most

important financial sources (Maguire, 2005). Under the disaster assistance system,

Congress assigned $52 billion to aid victims and regions affected by Hurricane Katrina

4
In the aftermath of Hurricanes Katrina and Rita, the percent of approved disaster loan was only 15.0%
among 9,348 applicants in 2005, and the percent was even lower with 14.5% among 24,819 applicants in
2006 (Lindsay, 2010).

40
with the declaration of a “major disaster” on August 29, 2005 (Kunreuther, 2006, p. 214).

Though the federal government committed huge amounts of funds to regions

affected by Hurricane Katrina, the question raised whether funding from the federal

government was used properly. Critiques against massive disaster relief money after

Hurricanes Katrina and Rita suggest that the money inflow was not for local recovery, but

for political purposes favoring “developers, residential elites and their allies” (Pais &

Elliott, 2008, p. 1420). As the federal aid was used for those who could take advantages

from the public money, it was not assured whether the influx of federal budget was

helpful during the recovery process. Shughart (2006) even argues that the governmental

money was misused and wasted because of self-interested bureaucracy and resident

groups.

What can be inferred from the failure of SBA disaster loan programs and

governmental aids is that regional recovery cannot be driven by outside funding. Of

course, governmental funding can boost regional economy for a short period of time, but

the affected regions should adjust and find relevant strategies for long-term economic

growth. Boettke et al. (2007) argue that the recovery process can be better facilitated by

the private sector that is guided by resources and relevant information than by the

governmental relief programs.

The above research indicates that regional ability to recover depends on the efforts

and adjustments of private sectors. In particular, this research argues that

entrepreneurship can lead this recovery with its various roles. Based on the discussion

41
about the positive roles of entrepreneurship in the previous section, the next section

suggests entrepreneurial recovery and the first hypothesis.

2.3.2 The Roles of Entrepreneurship in Post-hurricanes

Entrepreneurial characteristics, such as finding new opportunities and problem-

solving capabilities, are expected to facilitate recovery after natural disasters. Nonetheless,

existing studies on natural disaster recovery primarily focus on estimations of economic

loss and social disorder. In other words, the relevant studies on entrepreneurial recovery

are sparse. Galbraith and Stiles (2006) argue that entrepreneurial roles and

entrepreneurial behavior have been ignored. The authors insist that entrepreneurship

should be emphasized, because “they (entrepreneurs) are highly related to disaster

vulnerability, speed of recovery, and breadth of reconstruction” (Galbraith & Stiles, 2006,

p. 154).

This research stipulates that a region with more entrepreneurs can increase regional

economic resilience because entrepreneurship plays several positive roles during a

recovery process. In the short term, entrepreneurs are supposed to (1) supply materials

and services for reconstruction; (2) attract more firms and investments; and (3) make new

business opportunities based on the information from the hurricanes. In the long term,

entrepreneurs are expected to (1) adopt new technologies when destroyed capital stocks

are replaced; (2) enhance productivity by utilizing more resilient technologies; and (3)

increase industrial diversity.

For a short term, it is naturally expected that establishments can provide basic
42
needs and products by (re)opening a business (Sautet, 2011). Even if residents who left

the region want to come back to the region, a lack of basic products for living might

thwart their intention to return. For these basic needs, some researchers argue that

entrepreneurs and small business owners have a motivation to help the communities not

just for profit-making, but for community rebuilding5 (Dinger et al., 2012; Johannisson

& Olaison, 2007).

Entrepreneurs can also meet excessive demands for materials and services required

for the rebuilding process. Several sectors including construction, building materials, and

home/office furnishings are expected to flourish for reconstruction (Zhang et al., 2009, p.

45). Some entrepreneurs who recognize this surging demand for building materials

provide them (Chamlee-Wright & Storr, 2008). It is evident that the excess in demand in

these sectors can be excellent opportunities for entrepreneurship.

Another aspect of new firms is that these can bring an externality called “spatial

spillover business effect” that explains the importance of neighboring firms (Chang &

Falit-Baiamonte, 2002; LeSage et al., 2011). The focal point of spatial spillover effect is

that more retail establishments in the affected communities can attract more services and

complementary products (LeSage et al., 2011). This effect was found in New Orleans

after Hurricane Katrina: small firms with less than five employees positively affect the

5
From this viewpoint, entrepreneurship is an agent that can mitigate the negative shocks caused from
catastrophic events. This “emergency entrepreneurship” emphasizes the social capital to take leadership for
increasing collective actions (Johannisson & Olaison, 2007, p. 73). However, this study focuses on
entrepreneurship that is motivated by profit and opportunity seeking; hence the social aspect of
entrepreneurship after natural disasters will not be further discussed.

43
neighboring firms’ reopening within three months (LeSage et al., 2011).

An important insight from the positive externality of new firms and reopening

activities is that these firms send a signal and information to other agents about “what the

opportunity is and how to pursue it” (Eckardt & Shane, 2003, p. 340). Charmlee-Wright

(2008) describes this positive externality with the “build it and they will come” strategy

that explains that individual activities for profit have leverage effects on a recovery

process with an emphasis of entrepreneurial leadership (p. 628). In short, entrepreneurs

can act as a signal of recovery, and attract new entrepreneurs from other regions

(Chamlee-Wright & Storr, 2008). Hence, it can lead to the influx of investment and

agents with the entrepreneurial mindset in the region.

Entrepreneurial activities can also generate economic profits as some people

exploit new business opportunities. For example, Ehrenfeucht and Nelson (2012)

describe that young professionals and graduates came to New Orleans to take

opportunities for new businesses. New Orleans has experienced economic dynamics with

entrepreneurs who came from other regions since 2006. The motivations of newcomers

can be found in the fact that natural disasters can encourage positive expectations about

new businesses and opportunities (Brück et al., 2010). Because entrepreneurs can

recognize new opportunities from the hurricanes, they can bring some changes into

markets as well.

New-comers discussed above illustrate the “asymmetry of information” that

primarily explains the concept of entrepreneurial opportunity (Ardichvili et al., 2003;

44
Eckhardt & Shane, 2003; Shane & Venkataraman, 2000). Some people perceive business

opportunities based on the information derived from natural disasters, while others cannot

recognize them (Brück et al., 2010; Marshall & Schrank, 2014). Once the opportunities

are exploited by entrepreneurial activities, entrepreneurs can generate economic wealth.

Not only can entrepreneurs facilitate economic recovery during a short term, but

they can also positively affect long-term economic growth. This expectation is supported

by the fact that entrepreneurs can adopt new technologies when destroyed capital stocks

are replaced. When natural disasters occur, physical capital and properties face a higher

probability to be demolished than intangible assets because of a lack of mobility (Popp,

2006; Skidmore & Toya, 2002; Zhang et al., 2009). In addition, Okuyama (2003) and

Greenberg et al. (2007) argue that older equipment is more likely to be destroyed when a

disaster strikes.

As a result, destroyed physical capital stocks cause investments in new assets

equipped with new technologies and innovations (Horwich, 2000; Leiter et al., 2009).

Crespo Cuaresma et al. (2008) suggest that this kind of replacement effect triggered by

natural disasters is similar to the creative destruction that Schumpeter (1934) advocates.

Though creative destruction is applied to a quite different context6, the idea still holds for

the recovery process because the affected regions have a chance to improve their physical

6
The distinctiveness between pure creative destruction and replacement effect can be the causes: while the
former is driven by competition among firms, the latter is a result of natural disasters (Crespo Cuaresma et
al., 2008).

45
stocks7 and technology levels.

As the destroyed capital is upgraded with more productive capital, households,

companies, and governments and public agencies are likely to adopt technologies less

vulnerable to natural disasters (Hallegatte & Dumas, 2009). For instance, Shklovski et al.

(2010) emphasize that the importance of communication and technology increased after

Hurricane Katrina hit New Orleans, due to rescue operations and communication between

affected communities. In doing so, natural disasters provide a motivation to introduce

advanced communications technologies (Shklovski et al., 2010; Sutton et al., 2008). Due

to new technologies, it is not only possible to make technological progress, but it also can

decrease future damage costs.

Though previous studies suggest that regions affected by natural disaster might be

better off due to improved technologies and newly-built assets, these do not take account

into agents who promote these positive changes. If the replacement of capital is not

implemented by economic agents, technology and productivity would not be enhanced

(Popp, 2006). To experience the improvement of technologies and productivity after

natural disaster, regions require economic agents who can bring these changes. In other

words, natural disasters only provide opportunities to change the previous capital.

This study argues that entrepreneurs are expected to adopt frontier technologies,

and use them for entrepreneurial profits (Gunasekaran et al., 2011). Compared to large

7
For instance, Santa Cruz became a central place of business after the earthquake in 1989. As the city took
the earthquake as a turning point to change its economic climate, it could revitalize after the disaster
(Tierney & Webb, 2001).

46
firms that have a difficulty in accepting new technologies, entrepreneurs and small

businesses would recognize the new opportunities and exploit them in the recovery

processes. Entrepreneurs with proactiveness and risk-taking would create new products

or production process with opportunities that originate from natural disasters.

At the same time, these new business opportunities can be augmented by the

research activities and efforts of universities and research institutes. As governments

devote funds to research projects to decrease future costs of natural disasters, the funds

can be used to support university research to develop resilient technologies (The U.S.

Department of Homeland Security, 2006). The new technologies from research and

development activities are necessary to be used and commercialized through

entrepreneurial activities8. As discussed, new technologies and knowledge from research

activities do not have economic value until they are commercialized goods and services.

The insight arising from the replacement effect is as follows: if a region has the

ability to employ new technologies through entrepreneurial activities, it is reasonable to

believe that the region can be resilient in terms of improved productivity and economic

outputs. The key point of this statement is whether a region has productive entrepreneurs

who can deploy the new opportunities. This notion is highly consistent with the previous

study focusing on the role of entrepreneurs who work as a conduit of wealth creation in

the aftermath of Hurricanes Katrina and Rita (Boettke et al., 2007).

8
One good example is that a research team that invented resistant roofs to hurricanes made a contract with
an entrepreneur who could commercialize the research performance after Hurricane Katrina (Stephen et al.,
2007).

47
 Another affirmative aspect of entrepreneurship is that it can alleviate the decrease

in productivity after natural disasters. One reason for this is that entrepreneurs and small

firms would be less exposed to natural disasters because these have fewer tangible assets

than large firms. For this reason, the damage cost from natural disasters can be lower than

that of large and old firms, and this advantage make entrepreneurs recover more quickly.

For instance, Webb et al. (2002) show that the age of firms had an inverse

relationship with long-term recovery in South Dade County, Florida after Hurricane

Andrew in 1992. Similarly, Leiter et al. (2009) illustrate that firms with more intangible

assets, such as R&D and patents, are more likely to overcome the adverse effects of

flooding in productivity. Firms focusing on tangible assets were likely to face difficulty in

replacing physical capital stock after natural disasters. Young firms with less tangible

resources showed a high growth rate and high employment after a natural disaster (Leiter

et al., 2009). These empirical studies indicate that small and young firms can offset a

decrease in productivity after natural disasters.

On the other hand, entrepreneurs are more likely than large firms to adapt

themselves to new situations by concentrating on their core activities and R&D. This is

because that entrepreneurs and small firms are superior to their counterparts in terms of

adaptability. Basker and Miranda (2014) show that the exit rate of surviving small and

young firms had lowered in long-term period than large and old firms after Hurricane

Katrina hit. It is explained by the fact that surviving young and small firms after the

hurricane were more adaptable to the changes than old and large firms.

48
 The flexibility and adaptability of small firms are regarded as behavior advantages

compared to rigidity of large firms (Rothwell, 1989). To succeed or survive in the

aftermath of a natural disaster, firms should adapt and evolve in the new environment

(Newey & Zahra, 2009). As an acute and external shock, a natural disaster compels

entrepreneurs and small firms to recognize the changes caused by the event. Due to the

entrepreneurial orientation emphasizing proactiveness and competitive aggressiveness, it

is not difficult to imagine that these productive firms had focused their core activities

during the recovery process. By doing so, small and young firms could survive as they

put efforts in adapting to the changes.

Finally, a number of studies have shown that diversified economic structures can

be more resilient than specialized economic structures (Martin, 2012; Pike et al., 2010;

Simmie & Martin, 2010). A diversified economy diminishes negative effects of shocks

with various economic actors, and is likely to have the adaptive capacity (Pike et al.,

2010; Xiao & Drucker, 2013). Therefore, a diversified economy is not only an important

factor to be a resilient region (Christopherson et al., 2010; Simmie & Martin, 2010), but it

is also considered as a more effective economic base to accomplish economic growth

than a specialized economy (Glaeser et al., 1992).

Though a diversified economy is recognized as one of the most important elements

of regional resilience, accumulated empirical evidence in the context of natural disasters

is far from complete. Despite an overall lack of empirical studies, the study of Xiao and

Drucker (2013) highlights the significant role of the diversified economic structure with

the 1993 Midwest flood. The authors claim that economically diverse counties are more
49
resilient than less diverse counties after the flooding when they measure regional

resilience with employment and income growth.

It is noteworthy that Xiao and Drucker (2013) focus on the initial status of

diversification in industries. From the resilience theory, however, regions can alter their

economic structure by adapting themselves to their environments. As Chapple and Lester

(2010) suggest, a trajectory of regional economic growth can be changed with better

outcomes. The insight from Chapple and Lester’s work is that some regions might have

different paths after exogenous shocks hit. Thus, some of the affected regions can

increase their industrial diversity after they experience natural disasters.

This study assumes that the emergence of entrepreneurship brings a diverse

environment as a response to natural disasters. Desrochers and Leppälä (2011) argue that

entrepreneurship unavoidably leads to diversified economies. This is because a large

number of small firms and entrants mean an increase of collection of firms pursuing

different innovations and strategies (Cohen & Klepper, 1992). Indeed, Audretsch and

Keilbach (2004a) also suggest that entrepreneurship can increase regional diversity

because it can transform knowledge into economic knowledge in the form of

commercialized products and services. If this argument stands, new firms in regions

affected by natural disasters lead to diverse economic structures.

New Orleans works as a good example. The region showed a surge of

entrepreneurship after Katrina to the extent that the number of startups surpassed the

national rate of startups (Liu & Plyer, 2010). With the increase of the number of new

50
firms, knowledge-based industries including education, legal services, and insurance have

emerged as a new leading sector, while the portion of previous export industries including

tourism, oil and gas, shipping, shipbuilding, and food manufacturing has been diminished

(Liu & Plyer, 2010, p. 4-5). At the same time, the industrial diversity of the regional

economy has also improved. From this example, it can be inferred that the entrepreneurs

emerging in the knowledge-based economy enhance the economic diversity.

Taken together, entrepreneurship is expected to supply necessities and materials

during the early recovery process, attract more firms and entrepreneurs, and

commercialize new opportunities to make economic profits for a short term. In addition,

entrepreneurship can identify and develop new opportunities when there is a replacement

of demolished physical stock and equipment. In doing so, entrepreneurship leads to

improvement in productivity and a diversified economic base. Based on the discussion,

the role of entrepreneurship can be summarized as the following Table V.

Table V. The Roles of Entrepreneurship in the Aftermath of Natural Disasters

Period Effect
Supply of materials and services for the
rebuilding process
Attracting more firms and investments
Short-term
into the affected regions
Commercializing new opportunities by
establishing new firms with employment
Introduction of new technologies as a
result of destroyed capital and equipment
Long-term
Enhancement of productivity by focusing
on assets less vulnerable to natural
Authors
Chamlee-Wright & Storr,
2008; Sautet, 2011
Chamlee-Wright & Storr,
2008; LeSage et al., 2011
Brück et al., 2010;
Ehrenfeucht & Nelson, 2012
Skidmore & Toya, 2002;
Stephen et al., 2007
Basker & Miranda, 2014;
Leiter et al., 2009; Webb et

51
 disasters al., 2002
Increasing industrial diversity Desrochers & Leppälä, 2011

With the recognition of the role of entrepreneurship, it can be expected that

regional resilience would be improved with the engagement of entrepreneurs in the

recovery process. In summary, the importance of entrepreneurship can be represented as

Eraydin (2014, p. 16) puts it: “The ability of entrepreneurs and small businesses to be

adaptable and flexible is paramount to their capacity to absorb and respond to external

shocks which in turn has a positive impact on the resilience of their locality.”

Thus, this study posits that entrepreneurship can be a factor that explains regional

variance in economic resilience with the following hypothesis:

H1: All else equal, regions with more entrepreneurship after natural disasters can have

higher growth rates of per capita income, employment, and population than regions with

less entrepreneurship.

2.4 Entrepreneurial Recovery from Economic Recessions

2.4.1 Economic Impacts of Economic Recessions in 2008-2009

According to the National Bureau of Economic Research (NBER), a recession

represents “a significant decline in economic activity spread across the economy, lasting

more than a few months” (NBER, 2008, p. 1). Declines resulting from a recession are

usually obvious “in real GDP, real income, employment, industrial production, and

52
wholesale-retail sales9” (NBER, 2008, p. 1). In particular, gross national product (GNP) is

a comprehensive indicator of general economic activity. If two or more consecutive

quarters show a falling GNP, it is easy to determine economic recession (Abberger &

Nierhaus, 2008; Pearce & Michael, 2006).

Based on the definition, the Business Cycle Dating Committee of NBER decided

that the Great Recession began in December 2007 and lasted for eighteen months until

June 2009 (NBER, 2010). The last recession is not only regarded as the longest one since

World War II (NBER, 2010) but its impacts were more severe than the shorter and milder

recession in 2001 (Blinder & Zandi, 2010). The economic downturn was exacerbated due

to the combination of the breakdown in financial markets and decreases in business

investment (Labonte, 2010).

As explained above, a recession can be determined from various indicators. Real

GDP peaked in the fourth quarter of 2007, and it continuously declined from the first

quarter of 2008 until the second quarter of 2009 as shown in Figure 6. GDP had

decreased about 5 percent from the fourth quarter of 2007 to the second quarter of 2009.

Moreover, the output gap, which refers to “the difference between what the economy

could produce and what it actually produced” increased by roughly 8.1% because of the

recent recession (Elwell, 2013). From the economic resilience viewpoint, a problem

9
In general, it has been believed that prediction of recession and identification of its sources are difficult,
because their signals and causes differ over time and economic conditions (Grewal & Tansuhaj, 2001;
Latham & Braun, 2008; Stock & Watson, 2003). For the difficulty in predicting the recession, the use of
composite indicators used by the NBER has been criticized. The main weakness of the composite indicators
published by the Conference Board’s Index of Coincident Indicators is that it measured without theory
(Koenig & Emery, 1993).

53
related to this output gap is the U.S. economy confronted the negative hysteresis effect;

therefore, it is possible to have a permanently lower growth path in the U.S. (Elwell,

2013).

Figure 6. Real Gross Domestic Products (2006-2010)

15,200

15,000

14,800

14,600

14,400

14,200

14,000
I II III IV I II III IV I II III IV I II III IV I II III IV
2006 2007 2008 2009 2010

Source: Bureau of Economic Analysis (2014).

Note: Billions in 2009 dollars (seasonally adjusted at annual rates).

With the significant decrease in gross domestic products, the unemployed

population had risen as well. Compared to the previous recessions, the recent recession

had shown greater unemployment to the extent that it reached 10.1% in 2009 which was

the second highest unemployment rate since 1982 (Elwell, 2013). Unemployment is more

conspicuous in certain sectors that are considered cyclical industries (Goodman & Mance,

2011). More specifically, construction and manufacturing industries experienced the

heaviest unemployment; these lost about 13.7% and 10.0% of jobs, respectively (Bureau

of Labor Statistics, 2012).

54
 Also, it is notable that the proportion of long-term unemployed people who had not

found a job in more than 27 weeks was higher than in previous recessions (Bureau of

Labor Statistics, 2012). Furthermore, the unemployment duration has lingered. The

prolonged unemployment duration is explained by several factors: decreases in labor

demand, mismatches in the labor market, changes in demographic characteristics, and the

extension of unemployment insurance benefits (Daly et al., 2011; Valletta & Kuang,

2012).

Unlike the trend of GDP and unemployment, productivity had not dramatically

decreased during the recession. It is believed that productivity would decrease during

economic downturns. However, the last recession brought only a slight drop in

productivity, and it started to recover as of 2009. The combination of a significant rise in

the unemployment and a small decrease in productivity had been found in previous

recession as well (Schaal, 2010). As illustrated in Figure 7, recessions in 2001 and 2008-

2009 had shown an increase in productivity and a decrease of working hours.

Figure 7. Productivity During Recessions (1948-2009)

Source: Bureau of Labor Statistics (2012, p. 16).

Note: These indices cover nonfarm business sectors.
55
 Some scholars have tried to explain the increase of productivity without additional

employment. Schaal (2010) argues that productivity growth is largely explained by a

churning process that is comprised of the emergence of highly productive firms and the

exit of unproductive firms. Lazear et al. (2013) prove that the high unemployment rate

during the recession was positively associated with productivity. The rationale is that the

workers within establishments increase their efforts during a recession. Lazear et al.

(2013) call this effect “making do with less.” (p. 2).

While the 2008-2009 recession had adverse effects on the national economy

discussed above, the effects were unevenly distributed among the regions. In other words,

recession hit harder in some places (Hacker et al., 2012; Martin, 2012). This regional

disparity of localized recession effects is largely related to the housing burst caused by

subprime crisis. As lowered housing prices negatively affect local housing construction

industries and economic activities, unemployment increases (Martin, 2010). For this

reason, unemployment rates were higher in states where housing prices significantly

decreased and levels of in-migrating households increased (Karahan & Rhee, 2013;

Martin, 2010; Walden, 2012).

Karahan & Rhee (2013) further argue that the housing crisis also lower regional

productivity. As home equity decreased, unemployed homeowners had less opportunity to

move out due to financial constraints. In other words, they faced the “house-lock” which

means that geographical reallocation can be hindered because of the housing burst

(Karahan & Rhee, 2013, p. 2). Even though households wanted to move out to places

with higher productivity providing more job opportunities and better salaries, they could
56
not easily migrate due to financial constraints. Consequently, the productivity was worse

in regions where housing prices significantly decreased.

From the argument that the housing crisis is adversely related to the local labor

market and regional productivity, it can be inferred that the last recession had a greater

impact on some regions of the Gulf Coast states. As one of regions where subprime

lending was high, Florida faced the rapid decrease of housing prices after the crisis

(Martin, 2010). Louisiana and Mississippi have also experienced an increase of

foreclosure rates (Evans & Sival, 2008; Otabor & Nembhard, 2012). Moreover, the

significant impact of the housing crisis was exacerbated in these states as the delinquency

rate had risen after Hurricane Katrina (Otabor & Nembhard, 2012). Consequently, these

regions show a higher level of unemployment than the national level during the recession

period.

One bright side of the economic crisis, meanwhile, was that the recessions gave

some regions opportunities to realign their economic structures. In other words, the

unemployment and productivity problem triggered by the recession provided insights

about the importance of the knowledge-based economy to some local communities of

Gulf Coast region. This change can be found in regional movements to encourage

regional innovation through entrepreneurial activities (Gulf Coast Community

Foundation, 2013; Liu & Player, 2010; Mississippi Gulf Coast Sustainable Communities

Initiatives, 2013; Williamson, 2010).

From the regional attempts to change their economic bases, it can be argued that

57
some regions of Gulf Coast states began to alter their previous trajectory which relied on

tourism and recreation. As several regional economies prioritized nurturing

entrepreneurship to increase economic growth, it is necessary to know how entrepreneurs

can work in the context of economic crises. The next section discusses the roles of

entrepreneurship in increases in productivity, innovation, and employment to recover

from recessions.

2.4.2 The Roles of Entrepreneurship in Post-recessions

It might be surprising that few studies have dealt with entrepreneurship in the

context of the business cycle. Even though entrepreneurship has been regarded as an

important factor for economic growth, research on entrepreneurial recovery from

economic recessions is still limited (Latham, 2009; Papaoikonomou et al., 2012).

However, many have scholars started to regard entrepreneurship as a source of recovery

after the last recession occurred (Parker, 2012).

Previous literature on the relationship between the business cycle and

entrepreneurship enhances the understanding of the role of entrepreneurship during

economic recessions. Some researchers argue that entrepreneurship is pro-cyclical which

means that entrepreneurs are prone to prosper during the economic boom, and vice versa.

Others believe that entrepreneurship is counter-cyclical which means that

entrepreneurship is more likely to recognize and exploit opportunities during recessions

than economic booms. The different perspectives on entrepreneurship lead to varying

expectations of the number of entrepreneurs and their effects during recessions.

58
 From the pro-cyclical entrepreneurship viewpoint, entrepreneurs tend to bear more

risk when productivity is high (Rampini, 2004). During economic booms, the expected

returns from risky projects exceed the expected returns from the riskless project, and this

positive expectation might lead to more entrepreneurship (Rampini, 2004). Indeed, the

agency costs for lending are also lower than during economic downturns (Bernanke &

Gertler, 1989; Parker, 2009). Based on these favorable conditions to entrepreneurship, the

pro-cyclical view argues that the number of entrepreneurs increases during economic

booms whereas it decreases during economic recessions.

From the counter-cycle entrepreneurship viewpoint, the cost of starting a new

business including employment costs and rents of offices would be lower during a

recession. Also, the production costs can decrease during a recession, and entrepreneurs

sell these products when the demand recovers. By separating the period of production and

sales, recession provides more incentives to entrepreneurs (Francois & Lloyd-Ellis, 2003).

Thus, economic downturns can be a good period to start new firms.

Empirical evidence prefers pro-cyclical entrepreneurship to counter-cyclical

entrepreneurship with the statistical proof where entrepreneurship is higher in economic

booms rather than in recessions (Rampini, 2004). However, the pattern of

entrepreneurship during recessions is inconsistent and independent (Congregado et al.,

2012; Koellinger & Thurik, 2012). This ambiguity complicates discussion about the role

of entrepreneurship during the recession. Despite the uncertainty, this study focuses on

what the entrepreneurs can bring into the economy for the recovery process in terms of

productivity, innovation and employment.

59
 One of the most important roles of entrepreneurs during economic recessions is

that they can increase productivity by displacing inefficient incumbents (Congregado et

al., 2012; Martin, 2012). With the emergence of more productive firms, less productive

firms would exit; hence, productivity would be improved. This is called the “cleansing

effect of recession” (Caballero & Hammour, 1991). Following Schumpeter (1934) and

Caballero and Hammour (1991), it is assumed that entrepreneurial activities are necessary

to deal with the misallocation of resources. In other words, mistakes made during an

economic expansion can be corrected by the recession that follows (Caballero &

Hammour, 1991).

Based on the cleansing effect, a recession offers an opportunity to increase

productivity by resource allocation. Caballero and Hammour (1991)’s cleansing effect is

theoretically based on the model of “creative destruction,” which is suggested by

Schumpeter (1934). According to Schumpeter (1934), “they (recessions) are the means to

reconstruct each time the economic system on a more efficient plan” (p. 8). From this

statement, it can be argued that an economic recession is not always bad for the economy.

However, the cleansing effect of recessions has been criticized because it does not

take account of financial constraints (Barlevy, 2002; Ouyang, 2009). Admittedly, a lack

of capital and difficulty in lending results in fewer entrepreneurial activities and high exit

rates of small firms. Because of financial constraints and uncertainty, entrepreneurs offer

fewer job opportunities to employees that impede job reallocation which is regarded as

the “sullying effect” (Barlevy, 2002, p. 66). Moreover, entrepreneurs are pushed to exit

even if they have the potential to grow in the future; hence, recessions may lead to the
60
“scarring effect” (Ouyang, 2009, p. 185).

The ambivalent effects of recessions imply that productivity would be determined

by the relative magnitude of the cleansing effect and sullying/scarring effects (Ouynag,

2009). In other words, productivity cannot be increased if the sullying or scarring effects

are stronger than the cleansing effect. Much study has investigated how these two

different effects affect productivity and labor markets during a recession (Bachmann,

2005; Kehrig, 2015; Mustre-del-Río, 2014). In spite of the mixed conclusions of

empirical results, some studies have shown that cleansing effects are still valid.

For instance, a recent study of Osotimehin and Pappadà (2013) demonstrates that

firms with low productivity are a high portion of the exit rate. Firms that survive after

recessions tend to be more productive than exit firms. Foster et al. (2014) also find a

similar pattern showing that less productive businesses are prone to early exit in periods

of economic recession. In turn, an economic recession can be an opportunity to increase

productivity by transmitting the resources from low productive firms to high productive

firms. The enhancement of productivity during a recession is mainly caused by new

establishments and entrepreneurial activities.

In addition, productive entrepreneurs can absorb the negative effects of recessions.

Hallward-Driemeier and Rijkers (2013) show that productivity does not deteriorate

because of new firms. New firms contributed to an increase of productivity in the East

Asian economic crisis of the late 1990s because the entrants had higher productivity than

incumbents. Also, it is consistent with a recent study showing that the productivity of

61
entrants during recessions is 10~20% higher than that of entrants during booms (Lee &

Mukoyama, 2008, p. 15).

If the cleansing effect works, the number of entrepreneurs and young firms matter

for recovery from recessions. Haltiwanger (2011) posits that recovery of an economy

might be dependent on entrepreneurial activities. This argument is based on the fact that

young firms tend to be more productive than incumbents. Based on the secular trend of

static and dynamic allocative efficiency in the U.S., Haltiwanger (2011) suggests that the

slow recovery from the last recession is explained by the decrease in the start-up rate

since the 2000s.

Secondly, entrepreneurship can increase innovation even in an economic downturn.

While solving unemployment is a priority to recover from an economic recession,

innovation arises as an alternative of overcoming the shock (Ranga & Etzkowitz, 2012).

As the importance of innovation during a recession has increased, the role of

entrepreneurship and small and medium-sized firms has been augmented as well.

Increasing innovation to tackle the negative effects of recession is desirable because firms

are reluctant to invest in R&D and innovation activities during recessions, which can

deter long-term economic growth. Thus, the role of entrepreneurs in promoting

innovation during recessions is vital.

The sources of innovation can be found in entrepreneurial orientations and efforts

to invent new products and services. Schumpeterian entrepreneurship is assumed to seize

innovative business opportunities during economic recessions (Koellinger & Thurik,

62
2012). Entrepreneurial firms would promote competitive aggressiveness by increasing

investment despite the high degree of risks and uncertainties (Srinivasan et al., 2005).

Furthermore, entrepreneurs are inclined to take more risks by assuming that they can

have control over returns (Sarasvathy et al., 1998). This is a distinctive difference

compared to large incumbents that focus on cost reductions to sustain performance during

the recession (Latham, 2009).

Furthermore, the reason for emphasizing the role of entrepreneurship during

recessions is that entrepreneurs and young firms are more innovative than incumbents.

Unemployment and low income can urge some people to be entrepreneurs, because they

have low opportunity costs to start new firms (Koellinger, 2008; Koellinger & Thurik,

2012). Indeed, from the behavior pattern, these people can be more innovative because

they do not have many things to lose even if they fail (Koellinger, 2008). Though this

motivation might be criticized because necessity-driven entrepreneurship plays a

marginal role in the economy at best (Acs, 2006), the tendency of these entrepreneurs to

innovate is not negligible.

The argument that entrepreneurship can increase innovative activities even in a

downturn is supported by recent studies on entrepreneurial innovative activities. Soininen

et al. (2012) confirm that more innovative and proactive small and medium-sized

enterprises in Finland achieved good operational performances in terms of revenues and

assets during the 2008-2009 recessions. This empirical result indicate that entrepreneurial

orientations play a significant role in finding innovative ways to maximize resources

during hard times; consequently, the innovativeness and proactiveness of entrepreneurs

63
are driving forces to absorb the negative effects of the financial crisis.

Latham (2009) shows that start-ups in software industries increased investments in

R&D activities for their competitive advantages during economic downturns spanning

2001-2003. Whereas incumbents usually try to increase their performance by reducing

costs, small firms attempt to sustain or increase their competitive advantages by focusing

on innovation. It implies that small firms have an ability to adjust their core activities and

outputs, which allows entrepreneurs to deploy their strategies for economic changes.

Gebhardt (2012) suggests that programs supporting entrepreneurship and

innovative clusters were effective at smoothly overcoming a recent recession in East

Germany. Under the program, several indicators, such as firm failure, migration, and

unemployment, were stable between 2009 and 2011. The stable economic performance

indicates that startups and small businesses can facilitate an economic recovery by

increasing revenues and investments in technology. Thus, facilitating innovation can be

an alternative of economic recovery rather than focusing on the efforts of decreasing

unemployment.

Similarly, Keeble (1997) finds that small and medium-sized firms located in the

south-east U.K. showed relatively rapid recovery after the early 1990s economic

recession in employment, turnover, and profitability than peripheral regions. The reason

for this successful recovery of the south-east region can be found in the fact that it is a

core region of innovative and growth-oriented firms. It implies that small firms are trying

to adapt themselves to external changes by continuing innovative activities for their long-

64
term competitiveness.

Finally, entrepreneurs would help solve the unemployment problem through two

channels: they can directly reduce unemployment rate by being self-employed, and they

can create jobs as their businesses grow (Congregado et al., 2010). In both cases,

entrepreneurship is regarded as a good mechanism to decrease unemployment during

economic downturns. In particular, job creation from entrepreneurship is viewed as a

driving force of recovery (Haltiwanger, 2011).

Parker (1996; 2009) and Thurik et al. (2008) explain two channels connecting

unemployment and entrepreneurship. The first channel is the “recession-push effect”

(Parker, 1996; 2009) or “refugee effect” (Thurik et al., 2008), which refers to a

phenomenon where recession acts as a trigger for entrepreneurs because it is hard to find

paid employment positions. Moreover, becoming an entrepreneur provides a chance to

have income and social status (Koellinger, 2008). Therefore, a high unemployment rate

can create a large number of entrepreneurs (Fairlie, 2013). Thus, there is a positive

relationship between unemployment and entrepreneurship.

The second channel is “prosperity-pull effect” (Parker, 2009; 1996) or

“entrepreneurial effect” (Thurik et al., 2008), which refers to a condition where

individuals are likely to be self-employed when economic conditions are good with a

high demand in markets. With a high probability to earn profits, individuals are prone to

start their own businesses (Startiene & Remeikiene, 2015). The prosperity of

entrepreneurship will reduce the unemployment rate in the following periods. In this case,

65
there is a negative relationship between unemployment and entrepreneurship.

The tension between two different effects still exists among researchers.10

However, the focus of this study is not to configure which effect is more plausible than

the other, but to address concerns about whether or not entrepreneurship can contribute to

solving employment. Koellinger and Thurik (2012)’s study suggests a relevant argument

that entrepreneurs lead a cycle; while the authors partly accept the pro-cyclical

entrepreneurship concept, they believe that entrepreneurship can cause a decrease in

unemployment. Their empirical study reveals that an unexpected rise of 1%

entrepreneurship in t year causes a decrease in unemployment rate by 1.2% in t+1 year in

a global economy when the authors used the data of 22 OECD countries from 1972 to

2007.

While entrepreneurship causes the unemployed to turn to self-employment, another

important issue is that entrepreneurs can create jobs and hire people (Parker, 2009). It is

notable that the number of net jobs created by entrepreneurship should be considered

alongside the number of jobs destroyed by the entrants. If entrepreneurs create more jobs

than the number of jobs desructed by their entry, it would support the argument that

entrepreneurship benefits employment.

According to Moscarini and Postel-Vinay (2012), small firms provided more net

10
Empirical studies covering the relationship between entrepreneurship and unemployment have thus far
provided inconclusive results. The results are mixed in terms of research time periods, measurements of
entrepreneurship, and research units. Parker (2009) exemplified controversial results on the relationship
with a number of articles: while 22 studies showed a positive relationship, 14 studies exhibited the opposite
result based on cross-sectional data of U.K. Parker (2009) explained this difficulty in analyzing the mixed
effects with idiosyncratic regional characteristics and economic conditions and environments.

66
job creation and their speed of recovery is much faster than their counterparts during

recessions in the U.S. This is explained by the fact that small firms tend to grow faster

than large firms during economic recessions. Interestingly, this trend is found in other

countries including France, U.K., and Canada. In the end, the authors admit that small

firms are likely to create more jobs than large firms when unemployment is great.

Meanwhile, Haltiwanger et al. (2013) emphasize firms’ age rather than size. Young

firms have potential to grow faster than their older counterparts when they reach a stable

status in a market. As a result, one can expect a net job creation from start-ups and young

firms. In this regard, Haltiwanger et al. (2013) argue that governmental support should be

focused on the firms’ age instead of size. As illustrated in Figure 8, the number of jobs

created by start-ups is relatively stable regardless of economic downturns. tructed by

their entry, it would support the argument that entrepreneurship benefits employment.

Figure 8. Job Creation of Start-ups

Source: Stangler (2009, p. 12).

Note: Gray-shadows represent economic recessions.
67
 Based on the previous discussion about the positive roles of entrepreneurship, this

study argues that entrepreneurship can be a good mechanism to mitigate the negative

effects of recession. In this study, entrepreneurs are supposed to increase productivity

through cleansing effects and decrease unemployment via self-employed and/or making

new jobs for a short term. In addition, entrepreneurs are expected to conduct and maintain

innovation to increase their competitiveness for the long term. Table VI summarizes the

expected roles of entrepreneurship during economic recessions.

Table VI. The Roles of Entrepreneurship During Economic Recessions

Period Role of Entrepreneurship
Short-term
Improvement of productivity by entering
into markets
(cleansing effects of recession)
Reduction of the level of unemployment
and job creation
Long-term Promoting and maintaining R&D
activities and innovations
Authors
Caballero & Hammour, 1991;
Hallward-Driemeier &
Rijkers, 2013; Osotimehin &
Pappadà, 2013;
Haltiwanger, 2011;
Koellinger & Thurik, 2011;
Stnalger, 2009
Gebhardt, 2012; Latham,
2009; Soininen et al., 2012

Consistent with previous research and empirical evidence, this study stipulates that

entrepreneurship plays a positive role in recovery from economic recessions. This

argument can be described with the second hypothesis as follows;

H2: All else equal, regions with more entrepreneurship after economic recessions have

higher economic growth rates of per capita income, employment, and population than

regions with less entrepreneurship after an economic recession.

68
 CHAPTER III

RESEARCH DESIGN AND FRAMEWORK

3.1 Introduction of Research Design

The main concern of this study is to examine whether entrepreneurship can

contribute to regional economic resilience. For this purpose, this study selects regions

affected by hurricanes in 2005 and economic recessions in 2008-2009. In this study,

affected regions refer to counties or parishes that were eligible to receive public

assistance11 grants due to Hurricanes Katrina and Rita. 433 counties or parishes were

designated as affected regions, and 100 counties were designated as the most affected

regions that were eligible to receive both public assistance and individual assistance12

among affected counties.

11
Public assistance refers to the program provided by the Federal Emergency Management Agency
(FEMA) to help state and local governments and certain private non-profit organizations in the forms of
debris removal, emergency protective measures, and the repair or replacement of disaster-damaged
infrastructure (FEMA, 2012).
12
Individual assistance refers to the program to help some people affected by natural disasters in the form
of financial assistance for housing and other needs (e.g., medical services, personal property, damaged
vehicles and other disaster related expenses (FEMA, 2012)

69
 To investigate its role in the context of post-shocks, this study employs two

different methodologies: panel and quasi-experimental analyses. While panel analysis

would show important factors of economic resilience in linear equations, quasi-

experimental design with a sophisticated matching is expected to probe into causal

inferences about the relationship between entrepreneurship and economic resilience.

These two methodologies are assumed to complement each other to conclude why

entrepreneurship is important in the affected regions.

Both methodologies share a common research period, unit of analysis, and

dependent variables. First, both the panel and quasi-experiment analyses use 2000-2012

data at the county level.13 The reason for considering the data of period 2000-2004 is that

it can provide a baseline before the hurricanes. The pre-shock status might create an

expectation about the magnitude of recovery which is highly related to resilience. In

addition, the time period of about 7 years after the hurricanes (2006-2012) is suggested as

an appropriate research period to measure the economic recovery (Chang, 2010).

Second, this study adopts a county14 as a unit of analysis. A county can be a good

unit to examine because entrepreneurship is a localized activity (Audretsch & Keilbach,

13
Even though there was a short economic recession in 2001 throughout about 8 months, its impact was
negligible. In particular, real GDP even showed about 0.2% increase from the first quarter of 2001 to the
fourth quarter of 2001 (Kliesen, 2003), and economic indicators did not show significant decreases
(Nordhaus, 2002). Hence, this study assumes that the economic recession in 2001 did not affect the
regional economy in any significant way.
14
Metropolitan areas were considered as a relevant unit of analysis before selecting counties. Though
metropolitan areas are relevant functional units of economic activities, the number of the unit is only 24
which is regarded as too few to conduct both panel and quasi-experiment analysis. For this reason, this
study uses county level data instead of metropolitan area data.

70
2007; Plummer & Acs, 2005). Due to this reason, many researchers have used the county

level data of entrepreneurship and its impact on economic growth (Acs & Plummer, 2005;

Audretsch et al., 2008; Fölster, 2000; Henderson & Weiler, 2009). In addition, it is

desirable to analyze the effect of governmental money endowed to local governments

with administrative boundaries, rather than a functional one such as in metropolitan areas.

Hence, a county is a relevant geographic boundary to measure the role of

entrepreneurship.

Third, this study comprehensively explores regional economic resilience with the

annual growth rates of per capita income, employment, and population. These economic

outcomes have different trends and behaviors, and have been used as proxies to

determine whether regions are resilient after disturbances (Chang, 2010; Hill et al., 2008;

Xiao & Drucker, 2013). Compared to previous research focusing on a sole economic

indicator, estimating three different economic outputs can capture the entrepreneurial

effects on the research areas. The following sections describe two different research

designs and data.

3.2 Panel Analysis

3.2.1 Estimation Technique

In the first approach, this study uses a panel data set of counties affected by both

hurricanes in 2005 and economic recessions in 2008-2009. This study covers 42915

15
Among 433 regions affected by hurricanes in 2005, four counties are excluded in the analysis because of
the data availability in variables. The excluded counties are Kenedy county (TX), King county (TX),
71
counties in the Gulf Coast areas from 2000 to 2012. Because panel data consists of a time

series and cross-sectional attributes, it is possible to control unobserved characteristics of

each county or parish (Wooldridge, 2012). As a primary purpose of this study, this study

examines the role of entrepreneurship in the affected regions by following the economic

growth regression suggested by Mankiw et al. (1992) and Barro (1991). The effect of

entrepreneurship on economic growth rate can be estimated with the following equation:

(Eq. 1)

Where the subscript i and t are region and time, respectively, is the

natural log of growth rate of economic output, ln( is the natural log of the initial level

of economic output, is the entrepreneurship, is a set of control variables that

can affect economic outputs, is a constant term that can change over time, is error

term that is time-invariant over time, and is an error term.

From Equation (1), several econometric problems are expected. First, it is easily

recognized that the initial level ( ) can be correlated to the time-invariant error term

which is called “dynamic panel bias” (Roodman, 2006, p. 17). In this case, it is

problematic to estimate a panel data set with a lagged dependent variable with OLS,

because the zero correlation assumption16 is violated (Roodman, 2006; Wooldridge,

2001). It has been revealed that the lagged dependent variable is positively correlated

Loving county (TX), and Tensas parish (LA).

16
Zero correlation assumption refers that each explanatory variable is uncorrelated with the error term
(Wooldridge, 2012).

72
with the time-invariant error (Hoeffler, 2000; Hsiao, 1986). As a result, OLS leads to

upward biases.

Secondly, omitted variables or unobserved heterogeneity can also lead to an

inconsistent estimation. Indeed, entrepreneurial activities cannot be strictly exogenous if

other unobserved regional conditions affect it. It has been argued that entrepreneurship is

highly localized phenomenon (Audretsch & Keilbach, 2007; Plummer & Acs, 2005).

Thus, any kind of unobserved regional factors should be considered in terms of the time-

invariant effect. By assuming that the regional specific effects that can affect

entrepreneurial activates are time-invariant, it is possible to eliminate the regional effects

through the fixed effects (FE) model. However, the FE estimator is expected to provide a

negative correlation between the lagged dependent variable and the error term (Hoeffler,

2000). For this reason, the FE estimation is likely to end up with downward biases.

Based on the potential econometric problems, it is evident that the endogeneity

problem of the panel analysis should be taken seriously, as most of other independent

variables might be endogenous (Hansen & Tarp, 2000). To address the endogeneity

problem, two different methods have been suggested: the first-differenced GMM and

system GMM. An advantage of the first-differenced GMM is that it is possible to

disregard the individual effect and use lagged predetermined variables17 as instruments

(Holtz-Eakin & Kao, 2003). However, the first-differenced GMM can be less efficient

and precise because lagged levels of the series cannot be strong instruments when the

17
Predetermined variables are influenced by random events in past instead of contemporaneous events
(Hansen & Tarp, 2000).

73
time duration is short (Blundell & Bond, 1998; Holtz-Eakin & Kao, 2003).

As an alternative of the first-differenced GMM, the system GMM has been widely

used to estimate economic growth research. The essential idea of the system GMM is a

mix of “the standard set of equations in first-differences with suitably lagged levels as

instruments and an additional set of equations in levels with suitably lagged first-

differences as instruments” (Bond et al., 2001, p. 9). Because the system GMM uses an

additional instrument compared to the first-differenced GMM, the system GMM can

provide efficient and consistent results with short time periods and persistent series

(Blundell & Bond, 1998).

A critical issue of system GMM is to choose relevant instruments. If instruments

are weak, the inference from the results is also unreliable (Stock et al., 2003). According

to Baum et al. (2003), appropriate instruments are assumed to satisfy two conditions: they

should be correlated with the level of right-hand side variables, and should not be

correlated with the error terms (p. 14). Two tests are necessary to examine the validity of

the instruments: the Hansen test of overidentifying restrictions that examines the overall

validity of instruments and autoregressive (AR) test that shows whether the error term is

serially correlated (Hasan et al., 2009, p. 165-166).

3.2.2 Model specification and Data Source

From Equation (1), three different growth regressions are deployed as follows:

74
 (Eq. 2)

(Eq. 3)

(Eq. 4)

Where, PCIG, EMPG, and POPG refer to growth rates of per capita income,

employment, and population, respectively. , , and are the natural log

values of initial per capita income, the number of employee, and population, respectively.

Other explanatory variables include capital stock (CAP), skill of employees (SKILL),

patents (PAT), entrepreneurship (ENT), industrial diversity (DIV), net migration (MIG),

firm density (DEN), federal funding for affected regions (FED), the most affected region

dummy (MAR), an interaction term of federal funding and most affected region

(FED*MAR), and metropolitan statistical area dummy (MSA).

This study measures three different dependent variables. All dependent variables

are measured by the natural log of growth rate (ln( ). In addition, the natural log

values of the initial level ( of per capita income, employment, and population are

also considered to reflect the marginal effect of difference of levels. The reason for

including initial level of each dependent variable is because growth rate and level are

strongly related when other independent variables are constant or stable (Barro, 2001;

75
Hansen & Tarp, 2000; Mckenzie, 2001).

As the first dependent variable, per capita income growth (PCIG) is measured as

the annual growth rate in the total personal income18 divided by the regional population.

The per capita income is available at the Bureau of Economic Analysis (BEA). The

second dependent variable is employment growth rate (EMPG) which is estimated by the

annual growth rate of the number of employed civilian population.19 This data is

available at the Bureau of Labor Statistics (BLS). Finally, population growth rate (POPG)

is calculated by the annual growth rate of population of cilivian and miliatry personnel

who reside in a geographic boundary. Population data is avialabe at the Bureau of

Economic Analysis (BEA).

A set of independent variables is identified from previous studies on regional

economic growth and resilience. As discussed, some variables that are suggested as

important factors in regional economic resilience are highly related to new growth theory

emphasizing human capital and knowledge creation. Besides these variables, this study

adds entrepreneurship and several variables that can affect regional recovery, such as

federal funding and the most affected dummy variables in order to reflect the post-crisis

context.

18
Personal income is estimated by “the sum of wages and salaries, supplements to wages and salaries,
proprietors’ income with inventory valuation and capital consumption adjustments, rental income of
persons with capital consumption adjustment, personal dividend income, personal interest income, and
personal current transfer receipts, less contributions for government social insurance” (BEA, 2013).
19
Employed people refers to “persons who did any work for pay or profit during the survey reference
week; persons who did at least 15 hours of unpaid work in a family-operated enterprise; and persons who
were temporarily absent from their regular jobs because of illness, vacation, bad weather, industrial dispute,
or various personal reasons” (BLS, 2013).

76
 As classical variables influencing regional economic growth, capital stock is

considered. Capital stock (CAP) consists of two data sets: (a) annual investment in capital

equipment and software and (b) annual investment in capital structure (Abel & Gabe,

2011). However, the capital stock is not available at the county level; hence, it is required

to estimate capital stock based on the national data. From the national-level capital stock

data estimated by two-digit NAICS, it is possible to calculate the capital investment per

employee. Then, the value is weighted by the number of workers in each county (Abel &

Gabe, 2011). The estimated capital stock of counties is divided by the number of local

labor force. The national level capital stock and the number of employees of each

industry are available at the Business Economic Analysis (BEA) and the Census Bureau,

respectively.

Skill of employees (SKILL) is estimated to capture human capital. The skill index

suggested by Berry and Glaeser (2005) can present the composition of employees with

bachelor degrees or higher at the county level across industries. Education attainment (i.e.

bachelor degree or higher) has been considered as a relevant proxy for human capital.

Due to the data availability of education attainment at the county level data20, however,

the skill index is used as an alternative. When the index is calculated, it is necessary to

assume that each industry in a county would have the same share of employees with

bachelor degrees or higher with the national share (Berry & Glaeser, 2005, p. 415). The

20
In addition to educational attainment, several measurements for human capital have been suggested as
indicators including drop-out rates, years of schooling, and number (percentage) of high school and/or
college graduates (Stroombergen et al., 2002). However, the percentage of people with bachelor degrees or
higher is not available through 2001 to 2004 at county level. For this reason, it might cause a decrease of
observations if missing data is included. To prevent the loss of data observation, this study uses the skill
index.

77
number of employees of the county and the nation are measured based on two-digit

NAICS level. In addition, the total number of employees with bachelor degrees and

higher by industry is available at the Census. The skill index is estimated by the

following equation (Eq. 5):

(Eq. 5)

To measure regional knowledge stock, the number of patents (PAT) is used. The

number of patents allows for gauging the regional innovation activities (Acs et al., 2002).

When one assumes that research labs and firms invest in the creation of new knowledge,

patents can be a proxy for the result of these efforts in innovation. More importantly, the

spillover effects of innovation activities are highly localized which means that the

positive externality of newly created patents and knowledge are limited to a certain

geographical distance (Bottazzi & Peri, 2003). Following this idea, a region’s patents can

be used to estimate regional knowledge assets that cannot easily benefit other regions.

Hence, regional new knowledge is represented by the number of patents per 1,000 labor

force. Patents data is available at the United States Patents and Trademark Office

(USPTO).

As the main variable of interest in this study, entrepreneurship (ENT) is represented

by the number of new firms per 1,000 population21. The data on new firms is obtained

from the Business Dynamics Statistics (BDS) of the Census Bureau, which provides the

data set of firms’ births and deaths. Following the BDS data definition, startups are

21
The number of new firms divided by population can reflect the tendency of residents to start new
businesses (Audretsch & Keilbach, 2004b).

78
regarded as any firm with the age of 0. A firm’s birth year is defined as “the year an

establishment first reported positive employment in the Longitudinal Business Database

(LBD)” (Census, 2014). Based on this definition, all startup firms are regarded as de

novo establishments, and only single-unit startups are considered.

Industrial diversity (DIV) is regarded as an important factor for economic growth

as well as economic resilience (Blumenthal et al., 2009; Christopherson et al., 2010;

Glaeser et al., 1992; Martin, 2012; Simmie & Martin, 2010). According to the portfolio

strategy, regions with diversified economic structures can be less affected by external

shocks (Frenken et al., 2007). In addition, industrial diversity can play a significant role

in the entry and success of new firms (Renski, 2011). To measure the industrial diversity,

the Herfindahl-Hirschman index is calculated based on the number of employees by two-

digit NAICS. The data of employees by industry and by county is available from the

Census Bureau. The Herfindahl-Hirschman index is estimated by the following equation

(Eq. 6):

(Eq. 6)

Where i refers to industries, and refers to a number of employees of industry i.

This index is calculated by summing the squares of the employees of each industry. In

other words, the size of each industry is weighted by the number of employees (Xiao &

Drucker, 2013). If a portion of a particular industry is dominant, the sum of the squared

percentage should increase and can range up to 10,000. Thus, a higher Herfindahl-

Hirschman index represents less industrial diversity in the region.

79
 Net migration (MIG) is measured by subtracting the number of individual out-

migrants from the number of in-migrants, and then divided by the number of labor force.

The data is based on area-to-area migration information which is provided by the Internal

Revenue Service (IRS). Because the IRS has the information of all individual income tax

files, it is possible to trace the mobility of taxpayers in each year. Though the county-to-

county migration database excludes some individuals who have low income or file a

small percentage of tax returns, it is not only reliable, but it is also the largest avialable

data to estimate migration (IRS, 2012).

Firm density (DEN) is measured by the number of establishments per 1,000 labor

force. Establishments refer to businesses and services that are based on a single location

(Census, 2014). It has been argued that firm density is an important factor of regional

economic growth (Ciccone & Hall, 1996). This is because the magnitude of firm density

can positively affect knowledge spillover (Wallsten, 2001). In other words, regions with

high firm density are more likely to share knowledge and information than regions with

low firm density. Information about establishments and labor force is available at the

Census and the Bureau of Labor Statistics, respectively.

To consider the post-shock condition, federal government funding (FED) is

included. It is suspected that governmental funding for regions affected by Hurricanes

Katrina and Rita plays an important role in the recovery process. The federal government

funding is measured by annual funding that was endowed to local governments and

individuals divided by per 1,000 labor force. The National Archives and Records

Administration (NARA) provides information about grants, insurance, loans, subsidies,

80
and other economic assistance that were bestowed by federal agencies (NARA, 2009, p.

1). Among the federal assistance programs, this study looks at the funding for regions

affected by Hurricanes Katrina and Rita at the county level.22

In addition to federal funding for affected regions, this study considers the

magnitude of damage caused by the two hurricanes. While affected regions are eligible to

receive individual or public assistance from the Federal Emergency Management Agency,

the most affected counties (MAR) can receive both individual and public assistance. To

reflect the damage of hurricanes, this study uses a dummy variable representing the most

affected counties. Following the Federal Emergency Management Agency (2005),

counties that are designed as the most affected counties have 1, and other counties have 0.

Metropolitan statistical area dummy (MSA) is also considered to be a good

indicator of agglomeration. Geographical concentration of economic activities (i.e., new

firm formations and R&D activities) facilitates economic growth through localized

interactions between economic agents and firms (Martin & Ottaviano, 1999). Therefore,

it can be suggested that a county within an MSA shows better economic performance

even after external shocks. Moreover, counties within an MSAs are considered as places

where innovation is actively implemented due to knowledge externalities as well as

22
The database provides specific information about the federal financial programs including “program
numbers, titles, static application identifiers, recipients names, names of businesses, recipient geographic
codes and location information, types of recipients codes, type of action codes, federal agency codes and
names, federal and non-federal funding amounts, dates of funding, transaction codes, principal place of
performance codes and names, and project descriptions” (NARA, 2009, p. 1). The description of each
program explains the purposes of various programs other federal agency including recovery from
Hurricanes Katrina and Rita in watershed protection, education, medical services, housing, and research
funds on protection or prevention of future hurricanes.

81
agglomeration economies (Tödtling & Trippl, 2005). Hence, a county belonging to MSA

can have benefits from these externalities. Since the definition of MSA has continuously

changed over time, this study reflects any changes in components by following the

definition of the Office of Management and Budget (OMB)23. Counties belong to MSAs

have 1, and other counties have 0.

Based on the discussion of variables, Table VII represents the specific

operationalization and data sources of variables.

Table VII. Description of Variables in Panel Analysis

Variable Operationalization Source
Dependent variables
Per capita income
Ln ( / ) BEA
growth
Employee growth Ln BLS
Population growth Ln ( / ) BEA
Independent variables
Initial per capita
Ln (initial level of per capita income) BEA
income
Initial employee Ln (initial level of number of employees) BLS
Initial population Ln (initial level of population) BEA
Investment of equipment and structure/number of BEA &
Capital stock
labor force BLS
Human capital Skill index Census
USPTO
Patents Number of patents/ 1,000 labor force
& BLS

23
The components county of each MSA has been changed over 2000, 2003, 2004, 2005, 2006, 2007, 2008,
2009, and 2010.

82
 Entrepreneurship Number of new startups/ 1,000 population Census
Industrial diversity Ln (Herfindahl-Hirschman index) Census
IRS &
Net migration Number of net migrants/ number of labor force
BLS
Firm density Number of establishments/number of labor force BLS
Federal money for Hurricanes Katrina and Rita/1,000 NARA
Federal funding
labor force & BLS
Most affected Designed regions as most affected regions
FEMA
region dummy (most affected counties =1; otherwise=0)
Federal funding * FEMA
Interaction term of federal money and affected region
most affected &
dummy
region dummy NARA
Components county of MSA (component county=1;
MSA dummy OMB
otherwise=0)
Note: All monetary values are adjusted in 2010 dollars.

3.3 Quasi-experimental Design

3.3.1 Propensity Score Matching

The purpose of employing a quasi-experimental design is to estimate causal effects

by comparing regions with high entrepreneurship to regions with low entrepreneurship

among affected regions. A well-designed quasi-experimental design is expected to reveal

the role of entrepreneurship in the aftermath of two different shocks. An experimental

design based on randomized controlled trials (RCTs) is a desirable design to test a causal

hypothesis (Rychetnik et al., 2002). However, randomization is not always feasible in

social science (Campbell, 1969). Because of this restriction, a quasi-experimental design

can help to draw causal inference by using a pretest and/or a control group (Shadish et al.,
83
2002).

In this study, it is expected that affected regions with high entrepreneurship would

illustrate better economic performances than regions with low entrepreneurship. For this

argument, it is necessary to assume that economic environments are similar among

counties, except for the level of entrepreneurship. After dividing the affected counties by

the number of entrepreneurs, the effect of new firms can be estimated by comparing the

economic outputs of high and low entrepreneurship counties. In this regard, matching is

the best way to make regions comparable.

Matching is defined as “any method that aims to equate (or “balance”) the

distribution of covariates in the treated and control groups” (Stuart, 2010, p. 1).

Following this definition, matching enables researchers to estimate the effect of treatment.

Because matching controls observable covariates before an intervention, treatment and

control groups are assumed to be systematically similar to each other (Dehejia & Wabha,

2002, p. 152). In doing so, matching mimics an experiment with randomization.

Among the various methodologies of matching, this study uses propensity scores

introduced by Rosenbaum and Rubin in 1983. One of the most important attributes of

propensity scores is “the probability of being treated” (Stuart, 2010, p. 6). In other words,

the propensity score indicates that the likelihood of receiving a particular treatment is the

same in the treatment and control groups. Hence, a treatment group can be matched to a

control unit with a similar propensity score (Dehejia & Wabha, 2002, p. 152).

To conduct matching, the first step is to know potential treatment and control
84
groups. Unlike other quasi-experiments with an obvious treatment (e.g., implementation

or no implementation of a certain program), this study is differentiated in that all counties

have entrepreneurship, more or less. This issue leads to a difficulty in selecting a relevant

cutoff point to categorize the regions in terms of high or low entrepreneurship counties.

Thus, choosing a cutoff is critical and substantial in this study.

Many studies use median points as the cut-off point to dichotomize their research

units. However, using median points is problematic, because it can cause inappropriate

and misleading interpretations (Fitzsimons, 2008; Royston et al., 2006). Even if it is

convenient to categorize groups based on their median or average points, it can cause

losses of information and power (Royston et al., 2006). Moreover, the median values are

also sensitive according to units that are included in the research; hence, it seems to be

arbitrary.

In order to avoid the potential drawbacks of splitting groups based on median

values, this study suggests the national entrepreneurial activities as a cutoff point. The

average national entrepreneurship ratio is estimated by the number of startups per 1,000

population during 1998-200024. Thus, a county is classified as a high entrepreneurship

region if the number of entrepreneurs is above than the national ratio, and vice versa.

According to the criteria, 274 counties are addressed as high entrepreneurship regions,

while 155 are low entrepreneurship regions among affected counties.

24
The national average of entrepreneurship ratio during 1998-2000 is 2.029. As an alternative to national
average entrepreneurship ratio, the average value of five states was considered. However, most affected
counties have more than the average of five states which means that it cannot be used as a valid cutoff point.

85
 Figure 9 represents the potential treatment and control groups among affected

regions.

Figure 9. Potential Treatment and Control Groups

After identifying potential treatment and control groups, the next step is to conduct

matching. The critical problem related to matching is selecting relevant covariates that

can affect the dependent variables. Despite the ambiguity of selecting matching variables,

this study chooses several variables affecting economic growth based on the previous

research (Bondonio & Greenbaum, 2007; Rogers & Tao, 2004; Xiao & Drucker, 2013).

From existing studies, several variables are considered, including regional capital,

industrial structure, urban hierarchy, demographic factor, and the effect of hurricanes.

First of all, it is obvious that regional capital affects economic growth. For this

reason, the physical, human, and knowledge capital are included in the matching

variables. As explained in the panel analysis, physical capital stock, skill index, and

patents data are measured to reflect regional capital. All three variables are measured by

the data in 2000.

Second, industrial structure also matters to regional economic growth. It has been

suggested that product cycle and industrial size affect regional industrial structure (Hill &
86
Brennan, 2000). When one assumes that industrial size is determined by the number of

employees, the employment share of main industries can partially reflect regional

industrial structure. In particular, this study emphasizes the portion of employees in

manufacturing, construction, and tourism and recreation industries. The first two

industries are vulnerable to business downturns, while the last industry concerns the

industrial feature of the Gulf Coast region relying on the ocean economy. In order to

reflect the portion of employees in the three industries that might be susceptible to

economic recessions and natural disasters, the average percentage of employees of the

three industries are estimated during 1998-2000.

With the consideration of the share of employees in the three industries, industrial

diversity, firm density, and wage productivity in 2000 are considered. While the reason

for considering industrial diversity and firm density are explained in the previous section,

wage productivity is expected to represent productivity level and the proportion of

knowledge-based industries (Echeverri-Carroll & Ayala, 2009). Wage productivity is

estimated by wage location quotient. All variables related to industrial structure are

available at the Census Bureau, while firm density and wage productivity can be retrieved

from the Bureau of Labor Statistics.

Third, it has been argued that urbanization affects regional economics (Black &

Henderson, 1999; Carlino et al., 2007; Henderson, 2000). The is because positive

externalities from dense economic activities (e.g., knowledge spillover, efficient

matching in a labor market, and decrease in transportation costs) can positively and

considerably affect economic development (Henderson, 2000). Due to this importance,

87
this study controls population density, urban population, and principal cities of MSAs.

Population density can be a simple and basic measurement of urbanization.

Population density is measured by the natural log of population per square mile during

1998-2000. In addition to population density, the percentage of urban population is

considered. Urban population refers to people living in urban areas25 in 2000. These two

variables are available at the Census Bureau. Finally, principal city26 dummy is also

included. Following the definition of Office of Management and Budget (1999), counties

having principal cities of MSAs have 1, and other counties have 0.

Fourth, demographic factors, such as poverty and migration, are included. Poverty

level represents a personal-specific characteristic as well as regional economic status

(Levernier et al., 2000). A high poverty rate is found in minority and low skilled

employees (Curtis et al., 2007). At the aggregate level, weak regional economies are

prone to having a higher poverty level than strong economies (Levernier et al., 2000).

Thus, regions with high poverty levels are believed to be less resistant to external shocks.

To control the poverty level, the percentage of individuals under the poverty level is

estimated in 2000. In addition, net migrants divided by the number of labor force are

considered to control county size and the influx of population. For this reason, the

average of three years’ migration rate during 1998-2000 is also estimated.

25
According to the Census (2002), urban areas cover two types of urban areas: urbanized areas “consisting
of densely settled territory that contains 50,000 or more people” and urban clusters “consisting of densely
settled territory that contains at least 2,500, but fewer than 50,000 people” (Census, 2002, p. 21962).
26
Principal city refers to the largest city in each metropolitan or metropolitan statistical area, and other
cities are eligible to be principal cities if the cities meet the extant standards of population size and the
number of employees (Census, 2013).

88
 Finally, the effects of hurricanes are controlled by including the most affected

region dummy and federal funding invested in the affected regions from 2005 to 2010.

These variables should be considered because their effects are believed to significantly

affect the dependent variables especially in the aftermath of hurricanes. As described

earlier, the former data follows the Federal Emergency Management Agency, and the

latter is available at the National Archives and Records Administration. The detailed

description of matching variables is summarized in Table VIII.

Table VIII. Description of Matching Variables

Category Matching variable Operationalization Source
Physical capital stock Investment of equipment and BEA &
(2000) structure/number of labor force BLS
Regional
Human capital (2000) Skill index Census
capital
Number of patents/ 1,000 labor USPTO
Patents (2000)
force & BLS
Annual average percentage of
Share of manufacturing
employees in manufacturing Census
employees (1998-2000)
industries
Annual average percentage of
Share of construction
employees in construction Census
employees (1998-2000)
industries
Industrial Share of tourism and Annual average percentage of
structure recreation employees employees in tourism and Census
(1998-2000) recreation industries
Industrial diversity Ln (Herfindahl- Hirschman
Census
(2000) Index)
Number of establishments
Firm density (2000) BLS
/number of labor force
Wage productivity (2000) Wage location quotient BLS
Population density Ln(Number of people/square
Census
(1998-2000) mile)
Urban Percentage of people living in
Urban population (2000) Census
hierarchy urban areas
Principal city (2000) County with principal cities OMB
Demographic Poverty (2000) Percentage of individual under Census
89
 factors the poverty level
Number of net migrants /number IRS &
Migration (1998-2000)
of labor force BLS
Most affected region Regions designed as most
FEMA
dummy (2005) affected region
Hurricane
Federal money for Hurricanes
effects Federal funding NARA
Katrina and Rita/1,000 labor
(2005-2010) & BLS
force

Based on the matching variables described above, this study conducts 1:1 matching

with replacement that can minimize the propensity score distance between high and low

entrepreneurship counties. The advantage of replacement during matching is that it can

decrease bias, as counties are matched by the nearest propensity score (Dehejia & Wahba,

2002). The process of 1:1 nearest neighbor matching method can be described as follows

(D’agostino, 1998): 1) a treatment unit is selected from randomly ordered treatment and

control units; 2) once a control unit with the closest propensity score is found, then the

first matched pairs are removed from the subjects; and 3) this process is continued with

the next treated unit.

3.3.2 Interrupted Time Series Analysis

After the matching procedure, this study measures the difference between high and

low entrepreneurship counties by using the interrupted time-series analysis (ITSA)27. This

methodology assumes that a particular intervention, such as a policy implementation or

27
It can be argued that comparison between treatment and control groups can be implemented by the
difference in difference (DD) methodology. The problem, however, rises when we consider there are two
different external shocks. Because of this issue, it is not possible to conduct DD analysis that compare the
pre- and post-shocks between treatment and control groups.

90
an external change, can interrupt the intercept and/or trend (Linden & Adams, 2011, p.

1231). The ITSA can be an effective methodology because this model controls “the

effects of regression to the mean” (Linden & Adams, 2011, p. 1231). More practically, it

estimates the coefficient of variables based on the Newey-West standard errors to control

unknown autocorrelation and possible heteroscedasticity (Smith & McAleer, 1994, p.

635).

The ITSA model with control group can be expressed by the following equation

(Eq. 7):

(Eq. 7)

Where refers to the dependent variable at each time t, T refers to the time order

since the starting point of the research (1,2,3…T), is a time dummy variable

illustrating the intervention (pre-intervention = 0; or post-intervention = 1), refers to

an interaction variable of time order and intervention time dummy, Z refers to a treatment

dummy variable (treatment = 1; or control = 0), refers to an interaction variable of

treatment and time order, refers to an interaction variable of treatment and time

dummy, and refers to interaction variables of treatment, time dummy, and research

period.

Figure 10 illustrates the meaning of each coefficient on the graph. As shown in the

figure, the upper line on the graph indicates the treatment group, while the lower line

points out the control group. The coefficients can be explained by pre- and post-

intervention. Regarding the pre-intervention status, is the differences between the

91
treatment and control groups in the intercept before a specific intervention is

implemented, while refers to the initial difference in the slopes between two groups.

If the matching is conducted well, the coefficient of and should not be

statistically significant.

Figure 10. A Visual Description of Interrupted Time Series Design

Source: Linden & Adams (2011, p. 1233).

Once a treatment is implemented, the effects of treatment can be estimated by

comparing the changes in intercepts and slopes. illustrates the difference in the

intercepts between the treatment and control groups when the treatment is implemented.

In other words, shows the instant effects of the treatment with changes in intercepts.

Finally, represents the differences in the slopes of the outcome between two groups

after an intervention. In particular, is similar to a difference-in-differences of slopes

92
in that the coefficient estimates the difference in slopes between the groups by comparing

the pre-intervention slopes of treatment and control groups.

This study extends Equation (7) by taking into account two events, in order to

reflect hurricanes in 2005 and economic recession in 2008. This study assumes that both

high and low entrepreneurship counties experienced both hurricanes and economic

recessions, more or less. Because the ITSA model allows multiple treatments, it is

possible to estimate the effects of two disturbances with the Newey-West regression

equations. From the Equation (7), two groups have the regression models as follows:

Eq. (8)

Eq. (9)

Eq. (10)

Equations 8-10 represent that growth rates of per capita income, employment, and

populations are function variables reflecting treatment, time, and shocks. Following the

logic of the ITSA, this study posits that the differences in the intercept, level, and slope

between high and low entrepreneurship counties are significant. As the matching process

considers the damage costs and other observable economic environments, the only

difference between high and low entrepreneurship counties is the number of

93
entrepreneurs.

Hence, this study expects that the difference in intercepts between two groups

would be significant because regions with high entrepreneurship are supposed to be less

sensitive to hurricanes and economic downturns. Moreover, it is assumed that the

difference in slopes between groups is substantial as entrepreneurship can lead to a long-

term economic growth. If regions with high entrepreneurship illustrate significant

differences in intercepts and slopes, it is expected that their actual levels of economic

performances would be higher than regions with low entrepreneurship.

To sum up, the quasi-experimental design is to examine the causal relationship

between entrepreneurship and economic growth. To do so, this study categorizes the

affected regions into high and low entrepreneurship counties based on the national

entrepreneurship ratio. Several variables are chosen to control the pre-shock conditions of

regional economies. As a result, it is assumed that the only difference between treatment

and control groups is the number of entrepreneurs. After the matching procedure,

matched treatment and control groups are estimated by the ITSA based on the Newey-

West standard errors.

94
 CHAPTER IV

RESULTS

4.1. Results of Panel Analysis

In this study, annual growth rates of per capita income, employment, and

population are dependent variables. In order to explore the effects of entrepreneurship on

the dependent variables, this study estimates its effect through the pooled OLS, fixed

effects (within), first-differenced GMM, and two-step system GMM. The estimations of

the first-differenced and two-step GMM are conducted with the xtabond2 command in

the Stata 13.0 package. Standard errors of the system GMM are calculated through the

Windmeijer (2005) correction, and they are robust in the presence of heteroscedasticity

across counties.

As discussed, the first-differenced and system GMM are subjected to the results of

autocorrelations (AR (1) and AR (2)) and overidentifying tests (the Hansen test). Tests for

autocorrelation and overidentifying tests are reported in the tables. Though the Hansen

tests for all three dependent variables are satisfactory, endogenous regressors can still be

95
over-fitted (Brülhart & Sbergami, 2009). For this reason, the number of instruments is

important even if the overidentifying test is robust. In these models, the numbers of

instruments of the first-differenced and system GMM are 397 and 402, respectively.

These numbers are less than the number of cross-sectional groups (429). Hence, the

number of instruments might not be an issue.

The two-step system GMM estimation is specified with exogenous, predetermined,

and endogenous variables28. Several variables are assumed as exogenous variables that

are uncorrelated to errors, including MSA dummy, the most affected region dummy, and

time dummy (IV-style). The remaining variables are regarded as predetermined or

endogenous ones that are correlated with past errors (GMM-style). For the estimation of

first-differenced GMM, MSA dummy and time dummy are treated as exogenous

variables. Consistent with the system GMM estimator, other variables are assumed to be

predetermined or endogenous. The estimations of the first-differenced and system GMM

are made using one year lag between dependent variables and independent variables.

As Bond et al. (2001) and Hoeffler (2000) suggest, the results of pooled OLS and

fixed effects might have upward or downward biased results with lagged dependent

variables. To check whether the first-differenced and system GMM estimators are biased,

the estimates of OLS and fixed effects can be used. The results will be discussed later, but

28
Exogenous variables are independent of the error terms. Predetermined variables are not correlated with
current and future events, but can be influenced by past values (Hansen & Tarp, 2000). Endogenous
variables are correlated with current and possibly past shocks (Roodman, 2006). In the first-differenced and
system GMM estimator, exogenous variables are regarded as IV-style, while predetermined and
endogenous variables are treated as GMM-style.

96
the system GMM estimates of the lagged per capita income, employment, and population

comfortably lie between the upper and lower bounds obtained from the OLS and fixed

effects. It means that the estimator of system GMM is valid.

First of all, Table IX represents the results of pooled OLS, fixed effects (within),

first-differenced GMM, and system GMM when per capita income is estimated as a

dependent variable. From the Equation (2), the parameter of initial per capita income

obtained from the system GMM estimator (-0.158) is between the pooled OLS (-0.047)

and the within group (-0.269) estimators. Meanwhile, the first-differenced GMM is even

lower (-0.351) than the fixed effects estimate. Thus, it is inferred that the first-differenced

GMM estimator has a potential downward bias, and there is the weak instruments

problem with the estimator. As such, the system GMM is more reliable than other

estimators; hence, this study mainly focuses on the results obtained from the two-step

system GMM estimation.

The tests for autocorrelation and overidentifying are satisfactory in the first-

differenced and system GMM estimators. While there is the first-order autocorrelation,

the test for second-order autocorrelation (AR2) indicates that there is no autocorrelation.

The test for overidentifying (the Hansen test) is also valid which means that the

instruments used in the model are satisfactory.

The main interesting variable of this study is entrepreneurship. As shown in Table

IX, the coefficient of entrepreneurship is positive but not significant at 10% level. It

means that the result of per capita income does not support the hypotheses of this study.

97
The coefficient of entrepreneurship obtained from the system GMM is similar to the other

estimates of OLS, fixed effect model, and first-differenced GMM. Consequently,

entrepreneurship does not appear to be an effective factor in determining per capita

income growth in post-shock regions affected by hurricanes and economic recessions.

Table IX. The Effects of Entrepreneurship on Per Capita Income Growth

Variable OLS FE (within) DIF-GMM SYS-GMM
-0.047*** -0.269*** -0.351*** -0.158***
Initial per capita income
(0.005) (0.01) (0.031) (0.022)
0.090*** 0.306*** 0.412*** 0.271***
Capital stock
(0.013) (0.026) (0.091) (0.048)
0.043*** 0.376*** 0.529*** 0.115***
Skill
(0.016) (0.027) (0.062) (0.032)
0.000 0.001 0.002 0.001
Entrepreneurship
(0.001) (0.002) (0.004) (0.003)
-0.001 -0.010 -0.046 0.002
Industrial diversity
(0.003) (0.006) (0.031) (0.024)
0.003** 0.002 0.002** 0.002***
Net migration
(0.001) (0.001) (0.001) (0.001)
-0.001 0.002 0.007 0.003
Patents
(0.002) (0.006) (0.007) (0.004)
0.269*** 0.079 2.904*** 1.148***
Firm density
(0.070) (0.223) (1.001) (0.212)
-0.030*** -0.028*** -0.020 -0.014
Federal funding
(0.007) (0.007) (0.013) (0.009)
-0.008*** -0.012***
Most affected region dummy Omitted Omitted
(0.002) (0.004)
Federal funding * most 0.040*** 0.042*** 0.063*** -0.004
affected region dummy (0.010) (0.010) (0.019) (0.006)
0.003* 0.017*** 0.066** 0.026***
MSA dummy
(0.002) (0.005) (0.028) (0.006)
0.483*** 2.708*** 1.511***
Intercept
(0.055) (0.115) (0.320)
R-squared 0.0319 0.1289
First-order AR (1) (P-value) 0.000 0.000
98
 Second-order AR(2) (P-
0.566 0.527
value)
Hansen test 0.109 0.119
Observation 5,148 5,148 4,719 5,148
Number of group 429 429 429 429
Number of instruments 397 402
Note: *, **, and *** represent significant levels of 10, 5, and 1% respectively. Standard errors are in
parentheses. The null hypothesis of autocorrelation is that there is no autocorrelation. The first-order
autocorrelation is rejected, but the second-order test is not rejected. The null hypothesis in the test for
overidentifying restriction (the Hansen test) is that the instruments are valid instruments. The result of
the Hansen test is not rejected and the number of instruments does not exceed the number of the cross-
sectional groups. The initial per capita income is the natural log of per capita income adjusted in 2010
dollars.

Meanwhile, some control variables positively affect per capita income growth,

such as physical capital stock, skill of labor force, net migration, firm density, and MSA

dummy. As expected, classical input factors such as capital stock and skill are leading

factors of per capita income growth. Interestingly, the coefficient of capital investment is

higher than the skill variable. It can be suggested that the investment in physical stock

might be more important than skills of employees during short or medium time periods in

regions affected by natural disasters. In addition, the variables reflecting regional

agglomeration, such as net migration, firm density, and MSA dummy also reveal that

regions attracting more people and firms are prone to have higher per capita income

growth.

Looking at the most affected region dummy variable, it is clear that regions that

were heavily affected by hurricanes are likely to have lower per capita income growth

than other regions. One possible interpretation of the results is that the destructive

hurricanes have persistently negative effects on per capita income. Moreoever, federal

governmental funding and its interaction term with the most affected region dummy
99
indicate, unfortunately, that these are not helpful in efforts to increase per capita income

growth.

The coefficients of other variables, such as industrial diversity and patents

variables, are not significant. Industrial diversity was expected that it would positively

affect per capita income growth because previous studies have emphasized diversified

economies for regional resilience (Martin, 2012). The insignificant coefficient of

industrial diversity can be explained by the fact that a diverse industrial economy has

ambivalent effects on per capita income and employment: while it can lower per capita

income, it can be beneficial to employment growth (Izraeli & Murphy, 2003). For this

reason, previous empirical studies have shown mixed results about the relationship

between income and industrial diversity (Frenken et al., 2007; Izraeli & Murphy, 2003).

Meanwhile, the coefficient of patent can be explained by the fact that patents require a

longer time lag to have commercial values. Moreover, the estimate of patents is plausible

when one assumes that relatively few patents have high economic value. Moreover, the

variances in economic values of patents are not ignorable (Gambardella et al., 2008);

hence, the number of patents itself might not contribute to per capita income growth in a

short time.

Table X presents the effect of entrepreneurship on employment growth. Similar to

the results of per capita income growth, the estimate of initial employee obtained from

the system GMM (-0.033) lies between the pooled OLS (-0.005) and the fixed effect

model (-0.231) estimates. It is obvious that the coefficient of the first-differenced GMM

(-0.230) is close to the fixed effect coefficient indicating a downward bias. Meanwhile,
100
the tests for autocorrelation and overidentifying of the first-differenced and system GMM

estimations are also valid.

Unlike the result of per capita income growth, the coefficient of entrepreneurship

has a positive and significant effect on employment growth at 5% level. This result

provides evidence showing that entrepreneurs can positively affect the growth in the

number of employees by being self-employed or creating job opportunities. With this

result, this study can corroborate previous studies demonstrating that entrepreneurship is

positively related to employment growth in normal circumstances. By considering the

effects of external shocks, this result corroborates that entrepreneurship is an effective

mechanism to increase employment in pre- and post-shock conditions.

Additionally, several variables represent positive and significant coefficients, such

as physical capital stock, industrial diversity, patents, federal funding for affected regions,

its interaction term with the most affected region dummy, and MSA dummy variable.

Given that the two hurricanes caused tremendous damages of physical stock, it is possible

to expect that rebuilding of facilities and infrastructures might provide more job

opportunities. In addition, industrial diversity positively affects the number of

employees29. As discussed above, it is more likely that diverse industrial structures can

increase employment rather than per capita income (Izraeli & Murphy, 2003).

The positive coefficients of patents and MSA dummy indicate that innovation and

agglomeration matter to employment. It is feasible that individual firms devoted to

29
Note that smaller value of the Herfindahl-Hirschman Index means higher diversity.

101
innovation are prone to concentrate on specific places. This kind of firms can create more

job opportunities because they grow faster than other firms. At the aggregate level, the

geographical concentration of these firms is easily found in MSAs (Hoogstra & Van Dijk,

2004). Thus, patents and MSA dummy positively affect regional employment growth in

the affected regions.

Federal funding and its interaction term with the most affected region dummy show

positive and significant effects. The governmental funding, by itself, has a considerable

impact on the employment growth. However, the coefficient of interaction term with the

most affected region dummy variable is higher than the federal funding variable. It can be

understood that the funding for the most affected regions can boost more employment

growth than other affected regions. It is suspected that federal funding can make job

opportunities through two channels: direct investment in physical capital stock and

training people for the regional recovery (GAO, 2006; 2010). In particular, the U.S.

Department of Labor (DOL) programs invested about $254 million to help workforce

development of affected regions through various programs, including the national

emergency grants, community-based job training grants, high growth job training grants,

and pathways to construction employment grants (U.S. Department of Labor, 2006, p. 9).

Contrary to the results of per capita income growth, firm density has a negative

effect on the growth of employment. Firm density was expected to contribute to job

creation based on agglomeration effects (Ciccone & Hall, 1996). However, the negative

coefficient of firm density is consistent with the previous literature illustrating that too

much competition in crowded markets can hinder employment growth rate (Acs &
102
Armington, 2004a; Hoogstra & Van Dijk, 2004).

Table X. The Effects of Entrepreneurship on Employment Growth

Variable OLS FE (within) DIF-GMM SYS-GMM

-0.005*** -0.231*** -0.230*** -0.033***
Initial employee
(0.001) (0.009) (0.040) (0.007)
0.069*** 0.168*** 0.181** 0.135***
Capital stock
(0.016) (0.030) (0.075) (0.044)
0.019 0.081*** 0.063 0.020
Skill
(0.020) (0.027) (0.055) (0.057)
0.007*** 0.005** 0.002 0.011**
Entrepreneurship
(0.002) (0.002) (0.005) (0.005)
-0.013*** -0.016** -0.080** -0.121***
Industrial diversity
(0.004) (0.008) (0.039) (0.026)
0.001 0.001 0.002 -0.001
Net migration
(0.002) (0.002) (0.003) (0.003)
0.008*** -0.004 0.001 0.028**
Patents
(0.002) (0.007) (0.015) (0.012)
-0.217** 0.722*** 1.715 -0.974**
Firm density
(0.085) (0.265) (1.340) (0.436)
0.001 0.020** 0.050*** 0.015**
Federal funding
(0.009) (0.008) (0.014) (0.007)
Most affected region -0.010*** -0.006
Omitted Omitted
dummy (0.003) (0.006)
Federal funding * most 0.012 -0.004 0.061** 0.024*
affected region dummy (0.012) (0.012) (0.030) (0.012)
0.012*** -0.001 0.058 0.037**
MSA dummy
(0.003) (0.006) (0.045) (0.017)
0.124*** 2.018*** 1.154***
Intercept
(0.029) (0.091) (0.206)
R-squared 0.023 0.130
First-order AR (1) (p-value) 0.000 0.000
Second-order AR(2) (p-
0.384 0.322
value)
Hansen test 0.101 0.110
Observation 5,148 5,148 4,719 5,148
Number of group 429 429 429 429
Number of instruments 397 402
Note: *, **, and *** represent significant levels of 10, 5, and 1% respectively. Standard errors are in
parentheses. The null hypothesis of autocorrelation is that there is no autocorrelation. The first-order
autocorrelation is rejected, but the second-order test is not rejected. The null hypothesis in the test for
overidentifying restriction (the Hansen test) is that the instruments are valid instruments. The result of
the Hansen test is not rejected and the number of instruments does not exceed the number of the cross-
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 sectional groups. The initial employee is the natural log of the number of employees.

Finally, Table XI represents the effect of entrepreneurship on population growth.

As shown, the coefficient of initial population obtained from system GMM (-0.007) is

lower than that of OLS (0.002) and higher than that of fixed effect (-0.155) estimations.

The coefficient of the first-differenced GMM (-0.137) is lying on the acceptable range. In

addition, the tests for autocorrelations and overidentifying indicate no problem.

Entrepreneurship positively affects the regional population growth at 1% level. The

result showing that entrepreneurship can lead to population growth indicates that new

firms can attract more people from other regions. Thus, this result empirically supports

the argument that entrepreneurs can act as a signal of business opportunities and recovery

(Chamlee-Wright & Storr, 2008). The positive effect of new firms in the affected areas on

population growth can be explained by two reasons. While entrepreneurship can give

positive perception to other entrepreneurs in other regions and it can also provide new job

opportunities, which can lead to influx of people. For these reasons, more new firms in

affected regions cause more people to move to the regions.

Aside from entrepreneurship, only capital stock and patents have positive and

significant coefficients. It can be argued that resilient regions would be able to attract

more investment in capital stock and business activities than less resilient regions. In this

case, people are willing to move to these regions, because these regions can grow more

than other regions. Furthermore, investment in infrastructure and new facilities can

increase the people’s expectation about the quality of life. As a result, these investments

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might be an opportunity to increase population. In addition, the positive coefficient of

patent is also consistent with previous empirical studies showing that larger cities have

more patents because of knowledge spillover effect (Audretsch, 1998).

Table XI. The Effects of Entrepreneurship on Population Growth

Variable OLS FE (within) DIF-GMM SYS-GMM

0.002*** -0.155*** -0.137*** -0.007***
Initial population
(0.000) (0.007) (0.032) (0.001)
0.009 0.024** 0.040* 0.025***
Capital stock
(0.006) (0.012) (0.022) (0.008)
-0.017** 0.037*** 0.041** 0.009
Skill
(0.008) (0.011) (0.018) (0.010)
0.007*** 0.003*** 0.001 0.010***
Entrepreneurship
(0.001) (0.001) (0.001) (0.002)
-0.001 -0.001 -0.005 -0.003
Industrial diversity
(0.001) (0.003) (0.007) (0.004)
-0.002** -0.001 -0.000** 0.001
Net migration
(0.001) (0.001) (0.002) (0.004)
0.005*** -0.003 -0.007* 0.010***
Patents
(0.001) (0.003) (0.003) (0.003)
-0.255*** 0.377*** 0.545 -0.440**
Firm density
(0.034) (0.106) (0.386) (0.147)
-0.001 0.005 -0.010 0.075
Federal funding
(0.004) (0.003) (0.012) (0.046)
-0.003*** 0.003
Most affected region dummy Omitted Omitted
(0.001) (0.005)
Federal funding * most -0.017*** -0.021*** 0.016* -0.195
affected region dummy (0.005) (0.005) (0.007) (0.010)
0.004*** -0.000 -0.001 -0.006***
MSA dummy
(0.001) (0.002) (0.006) (0.002)
-0.005 1.548*** -0.048
Intercept
(0.013) (0.073) (0.038)
R-squared 0.093 0.117
First-order AR (1) (p-value) 0.049 0.077
Second-order AR(2) (p-value) 0.344 0.728
Hansen test 0.200 0.151
Observation 5148 5148 4719 5148
Number of group 429 429 429 429
Number of instrument 397 402
Note: *, **, and *** represent significant levels of 10, 5, and 1% respectively. Standard errors are in
105
 parentheses. The null hypothesis of autocorrelation is that there is no autocorrelation. The first-order
autocorrelation is rejected, but the second-order test is not rejected. The null hypothesis in the test for
overidentifying restriction (the Hansen test) is that the instruments are valid instruments. The result of
the Hansen test is not rejected and the number of instruments does not exceed the number of the cross-
sectional groups. The initial population is the natural log of the number of population.

In contrast, it is surprising that the estimates of firm density and MSA dummy are

significantly negative. The coefficient of net migration is also not significant. These

results can be understood with the fact that these variables are standardized by per 1,000

labor force. When the number of labor forces decreases, it can inversely increase the

value of firm density and migration. It is well known that affected regions have suffered

from the lack of labor force (Groen & Polivka, 2008). Moreover, several MSA

experienced a huge population loss during 2005-2006 due to the hurricanes (Brookings

Institution, 2006). Given that the population levels does not fully recover to pre-hurricane

conditions, counties belonging to MSAs do not necessarily gain more population.

Other variables, such as skill, industrial diversity, federal funding and its

interaction term, and the most affected regional dummy, do not have significant effects. It

was assumed that skilled labor force attracts more people, because these people can

increase wage and productivity. However, it is not supported. In addition, industrial

diversity does not have a positive effect on population growth. It might be suggested that

population affects the industrial diversity, instead. The government funding and its

interaction term show insignificant coefficients similar to the per capita income

estimation.

According to the panel results, it is clear that the effects of entrepreneurship can

106
differ according to the measurement used. The evidence from the dynamic panel data of

this study reveals that entrepreneurship is positively related to employment and

population growth, but its positive aspect does not show in per capita income growth. In

particular, the positive relationship between employment and entrepreneurship is

consistent with other previous studies illustrating positive effects of entrepreneurship on

employment growth in normal economic conditions (Acs & Armington, 2004a). On the

other hand, the theoretical discussion arguing that entrepreneurship can act as a signal of

recovery is empirically proved. Because the emergence of new firms represents business

opportunities and evidence of recovery, evacuees and new people would migrate to the

affected regions.

One issue to be addressed is why entrepreneurship does not contribute to per capita

income growth. Two plausible reasons can be suggested. First, it might be due to the

decrease in spending of consumers after hurricanes and economic recessions. Even if

entrepreneurs start their own businesses after two shocks, people facing sudden shocks

would decrease their demands. In this case, the revenues of new firms are unable to

increase. Second, some entrepreneurs might start businesses based on the necessity-based

orientation. Because the hurricanes and economic recessions destroy a sizable number of

jobs, the unemployed may open businesses for a living. It is well known that these

necessity entrepreneurs are prone to be unproductive (Acs, 2006). If this kind of

entrepreneur takes a large portion of new firms in the affected regions, it is natural that

entrepreneurship cannot contribute to per capita income growth.

Another interesting point from the results is that capital stock is found in all three
107
dependent variables as a positive and significant factor. In contrast, regional knowledge

capital, such as skills of employees and patents, are partially significant after the

hurricanes. It is a little bit different from other studies emphasizing education attainment

and investment in innovation as factors that can significantly contribute to regional

resilience. These results can be explained by two reasons. First, the positive effects of

skills and patents can be shown in a longer research period. Second, the positive

coefficients of capital stock in the GMM estimators directly or indirectly stem from the

investments in destroyed buildings, facilities, and other physical stocks. As private and

public money have invested in the affected regions to repair or build new physical stock,

it can increase regional income, job opportunities, and the influx of people. For this

reason, the importance of capital stock is relatively more emphasized than skills of

employees and patents in the regions.

4.2 Results of Quasi-experimental Design

The results of quasi-experimental analysis consist of two parts. The first part of

results includes matching based on the propensity score. As described earlier, this study

employs the 1:1 nearest propensity score matching. The propensity scores obtained from

matching variables generate 97 pairs of treatment and control units. The second part of

results contains the interrupted time series analysis by examining the differences in the

intercepts, levels, and slopes of per capita income, employment, and population growth

between the treatment and control groups.

As the first part of the quasi-experimental design, 97 matched pairs are derived

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from the propensity score matching. Before discussing the results of interrupt time series

analysis, it is necessary to examine whether the distribution of matching variables is

balanced in the treatment and control groups (Caliendo & Kopeinig, 2005). In order to

check statistical differences, Table XII represents the result of Hotelling’s T-squared

test30 showing the mean difference in matching variables between the treatment and

control groups. As illustrated, there is no difference in means of matching variables

between two groups; hence, it can be inferred that matching is well performed.

Table XII. Summary of Balancing Test

Matching variables Treatment (n=97) Control (n=97) F-value p-value

Physical capital (2000) 0.037 (0.017) 0.035 (0.017) -0.757 0.450
Human capital (2000) 0.263 (0.027) 0.269 (0.030) 1.549 0.123
Patents (2000) 0.199 (0.805) 0.160 (0.306) -0.445 0.657
Share of employees in
manufacturing 0.116 (0.123) 0.117 (0.116) 0.021 0.983
(1998-2000)
Share of employees in
0.037 (0.036) 0.029 (0.0027) -1.599 0.112
construction (1998-2000)
Share of employees in
tourism & recreation 0.043 (0.023) 0.041 (0.024) -0.439 0.661
(1998-2000)
Industrial diversity (2000) 7.298 (0.340) 7.327 (0.322) 0.606 0.545
Firm density (2000) 0.044 (0.011) 0.044 (0.013) -0.331 0.741
Wage productivity (2000) 0.839 (0.134) 0.849 (0.143) 0.522 0.602

30
The Hotelling’s T-squared test has been widely used to examine whether there are differences in means
of matching variables between groups (Lee, 2013). If the null of Hotelling test is rejected, it indicates that
there is no balance in covariates between treatment and control groups (Lee, 2013).

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 Population density (2000) 2.970 (1.289) 3.180 (1.145) 1.199 0.232
Urban population (2000) 0.340 (0.293) 0.343 (0.272) 0.069 0.945
Principal city (2000) 0.030 (0.174) 0.062 (0.242) 1.0215 0.308
Poverty (2000) 20.039 (6.943) 20.884 (7.240) 0.829 0.408
Migration (1998-2000) -0.007 (0.025) -0.005 (0.022) 0.461 0.645
Most affected region
0.206 (0.406) 0.298 (0.460) 1.488 0.138
dummy (2005)
Federal funding
0.058 (0.076) 0.071 (0.083) 1.147 0.253
(2005-2010)
Note: The Hotelling’s T-squared test is conducted by dividing the affected regions into
two groups based on the estimated propensity scores. Standard deviations in
parentheses. The p-values of the test represent that the matched pairs are balanced at
5% level.

On the other hand, it is assumed that the treatment and control groups have a

difference in entrepreneurship. Figure 11 represents the distribution of entrepreneurship

in affected regions by group during 1998-2000. The entrepreneurship ratios (new

firms/1,000 population) of treatment and control groups range from 0 to 4.5 (the x-axis).

The distribution plot is smoothed using a kernel density technique. Because the cutting

point is the average of national entrepreneurship ratio (total number of new firms/1,000

population) over the three years (2.029), there is no dramatic difference between the

treatment and control groups.

However, it is obvious that the distribution of treatment group peaks near 2.3, then

tapers off at about 3.5. On the contrary, the distribution of control group begins at 0.5 and

peaks at 1.9. The plots illustrate that the distributions of entrepreneurship in each group

have different means and the ranges. With the only difference in entrepreneurship

110
between two groups, this study examines the causal relationship between

entrepreneurship and economic resilience.

Figure 11. Entrepreneurship Ratio by Treatment and Control Groups

To show the geographical distribution of treatment and control counties, Figure 12

represents the map of two groups with the boundary of the Gulf Coast states. It was

expected that high entrepreneurship counties would concentrate in particular places.

Unlike this expectation, it is difficult to find geographical distribution patterns of

treatment and control groups. Rather, the groups are evenly distributed across the states.

However, a large number of treatment and control counties are found in Texas and

Mississippi.

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 Figure 12. Map of Treatment and Control Counties

As the second part of the quasi-experimental design, the interrupted time series

analysis shows the differences in intercepts, levels, and slopes between treatment and

control groups. The differences are estimated by the growth rates of per capita income,

employment, and population of these two groups as discussed in the panel analysis. This

study assumes that counties with high entrepreneurship would outperform counties with

low entrepreneurship in the three dependent variables.

Figure 13 shows the actual and predicted per capita income growth by treatment

and control groups. The solid line on the figure represents the treatment group (high

entrepreneurship counties) while the dashed line indicates the control group (low

entrepreneurship counties). The initial intercepts of both groups were similar before the

hurricanes hit both regions, but the treatment group had lower slopes than the control
112
group. Though the purpose of matching is to make two groups similar, it is not always

feasible due to the limitation of quasi-experiment designs.

Figure 13. Trends in Per Capita Income Growth Rate

Note: Actual and predicted per capita income growth are estimated by regression with the Newey-West
standard errors. The number of annual observation is 194. Residual autocorrelation is tested with the
Durbin-Watson test (1.949).

When hurricanes hit in 2005, the intercept of the treatment group instantly

increased. This led to a statistically significant difference in the change of intercepts

between two groups. The effect of hurricanes was evidently stronger in the control group

compared to the treatment group. As shown, however, the slope of the control group

(0.012, 95% CI=0.003, 0.021) was steeper than that of the treatment group (0.005, 95%

CI=-0.003, 0.013) which means that the control group grew more than the treatment

group after the hurricanes. Consequently, the result cannot support the argument that

entrepreneurship can contribute to per capita income growth after natural disasters.
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 As the nation-wide economic recessions began in 2008, both groups experienced

decreases in intercepts. The magnitude of decreases in intercepts of per capita income

growth of two groups was quite similar. With the big decreases in the intercepts, there

was no statistical difference in the change of intercepts between two groups. Moreover,

the slope of per capita income growth of the control group was even higher (0.009, 95%

CI= 0.003, 0.021) than that of the treatment group (0.006, 95% CI= -0.003, 0.013). This

result led to the conclusion that entrepreneurship did not play a role in increasing per

capita income growth after the economic recession.

However, it is possible to expect that entrepreneurship can contribute to

employment growth as illustrated in panel analysis. Looking at Figure 14, it is obvious

that the intercepts and slopes of the two groups were quite similar before the hurricanes

hit. In 2005, the intercept of the treatment group was significantly and statistically higher

than that of the control group. Even though the slope of the treatment group was

downward (-0.006, 95% CI = -0.012, -0.000), the regions sustained higher level of

employment growth rate over the year of 2005-2007. Since other variables, including

economic conditions and the effects of hurricanes, are controlled, it can be argued that the

difference between two groups stemmed from entrepreneurship.

Meanwhile, economic recessions negatively and immediately affected both groups

with decreases in intercepts as expected. The effect of economic recessions led to no

statistical difference in the change of intercepts between two groups. In addition, two

groups grew similarly over the year of 2008-2012: the slope of the treatment group was

0.012 (95% CI= 0.003, 0.021), and that of the control group was 0.013 (95% CI= 0.008,
114
0.018). Similar to the growth rate of per capita income, the result indicates that

entrepreneurship did not have a positive effect on employment growth during recessions.

Figure 14. Trends in Employment Growth Rate

Note: Actual and predicted per capita income growth are estimated by regression with the Newey-West
standard errors. The number of annual observation is 194. Residual autocorrelation is tested with the
Durbin-Watson test (1.943).

Finally, Figure 15 illustrates the trends in population growth by groups. Before the

hurricanes, treatment and control groups showed similar intercepts and slopes. It is

interesting that the treatment group was hardly affected by hurricanes in 2005 with the

stable growth rate and level. Both groups represented similar slopes after hurricanes: the

slope of the treatment group was 0.001 (95% CI= -0.000, 0.003), and that of the control

group was also 0.001 (95% CI= -0.003, 0.006). Despite the similar trends, it is obvious

that actual levels of population growth of the treatment group were higher than the

control group in the aftermath of hurricanes.

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 Figure 15. Trends in Population Growth Rate

Note: Actual and predicted per capita income growth are estimated by regression with the Newey-West
standard errors. The number of annual observation is 194. Residual autocorrelation is tested with the
Durbin-Watson test (1.997).

The impact of economic recessions on the population was not significant in 2008.

Though the intercept of the control group increases, there was no statistical difference

between two groups. After economic recessions began, the slopes of both groups started

to decrease. Interestingly, the slopes of the treatment (-0.001, 95% CI=-0.002, -001) and

the control group (-0.001, 95% CI= -0.003, 0.000) were the same. The downward slopes

of both groups can be explained by the fact that people who lived in both regions

migrated to other places for job opportunities. This trend can be related to the previous

graph showing big decreases in employment in 2008.

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 With regard to the hypotheses suggested, two important issues are discussed in

depth. The first issue is whether regions with more entrepreneurship illustrated higher

economic growth rates after the hurricanes. From the graphs illustrating the intercepts,

levels, and slopes of per capita income, employment, and population growth rates, it is

visually obvious that the treatment group showed higher levels in employment and

population growth that are consistent with the panel analysis.

Table XIII specifically shows the statistical differences in means of dependent

variables between two groups using Hotelling’s T-squared test. As shown in the table,

regions with high entrepreneurship were prone to have higher employment and

population growth rates. In particular, the means of employment growth rates of the

treatment group were statistically higher during the first two years than the control group

after the hurricanes. The population growth rates of the treatment group were relatively

higher than that of the control group over the three years, although the statistical

difference between two groups was only found in 2006. Hence, entrepreneurship is

suggested as a factor that can mitigate the negative effects of natural disasters.

Table XIII. Difference in Levels Between Groups After Hurricanes

Year 2005 2006 2007
Dependent Mean (S.D.) Mean (S.D.) Mean (S.D.)
Per capita income growth
Treatment group 0.027 (0.037) 0.009 (0.056) 0.040 (0.047)
Control group 0.026 (0.053) 0.003 (0.134) 0.054 (0.072)
Hotelling’s T-squared 0.985 [0.377] 0.128 [0.880] 1.29 [0.3000]
Employment growth
Treatment group 0.021 (0.083) 0.036 (0.054) 0.014 (0.069)
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 Control group 0.009 (0.084) -0.004 (0.094) 0.013 (0.081)
Hotelling’s T-squared 7.490***[0.001] 7.299*** [0.001] 0.504 [0.605]
Population growth
Treatment group 0.001 (0.015) 0.003 (0.034) 0.003 (0.016)
Control group 0.000 (0.015) -0.014 (0.151) 0.002 (0.039)
Hotelling’s T-squared 0.484[0.618] 4.495*** [0.014] 0.803 [0.451]
Note: *** and ** represent significant levels of 1% and 5%, respectively. Standard
deviations are in parentheses. P-values of Hotelling’s T-squared test are in brackets.

One concern is that regions with high entrepreneurship had lower or similar slopes

of dependent variables compared to regions with low entrepreneurship as shown in Table

XIV. Even though the treatment group showed higher levels of employment and

population growth after the hurricanes, the downward slopes can be problematic. In other

words, the slopes of each dependent variable of the treatment group might indicate that

the differences in growth rates of employment and population between treatment and

control groups decreased.

Table XIV. Difference in Slopes Between Groups After Hurricanes

Regional performance Slope (95% CI) P-value

Per capita income growth
Treatment group 0.005 (-0.003, 0.013) 0.221
Control group 0.012 (0.003, 0.021) 0.008
Difference in slopes -0.007 (-0.008, 0.002) 0.231
Employment growth
Treatment group -0.006 (-0.012, -0.000) 0.044
Control group 0.002 (-0.011, 0.015) 0.769
Difference in slopes -0.008 (-0.022, 0.006) 0.278
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 Population growth
Treatment group 0.001 (-0.000, 0.003) 0.114
Control group 0.001 (-0.003, 0.006) 0.559
Difference in slopes 0.000 (-0.005, 0.005) 0.965

The decreasing gaps between treatment and control groups might be explained by

two plausible reasons. The first scenario is that the number of entrepreneurs in the control

group had increased because of the hurricanes that could not be controlled through the

matching. In this case, the differences in the dependent variables between two groups can

decrease. The second scenario is that the sole effect of entrepreneurship is too weak to

continuously lead to significant differences. Because entrepreneurial activities interact

with local economic environments and markets, the role of entrepreneurship might be

limited when input sources and knowledge creations are not abundant in the aftermath of

the hurricanes. Thus, entrepreneurial effects might not be sufficient to sustain upward

trends of employment and population growth rates.

The second issue is whether regions with more entrepreneurship showed higher

economic growth rates after the economic recessions. Unlike the case of hurricanes,

economic recessions illustrated more obvious result than the hurricane case. The long and

severe economic recessions made two groups similar in terms of intercepts, levels, and

even slopes of the dependent variables. As shown in Table XV, the means of the

dependent variables of two groups were not statistically different. The only statistical

difference in levels between two groups was the per capita income growth in 2012.

However, it was not because that the level of the treatment group is higher than the
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control group. Rather, it was because the control group had higher per capita income

growth level in the year than the treatment group.

Table XV. Difference in Levels Between Groups After Recessions

Year 2008 2009 2010 2011 2012
Mean Mean Mean Mean Mean
Dependent (S.D) (S.D) (S.D) (S.D) (S.D)
Per capita income growth
0.028 -0.019 0.028 0.042 0.029
Treatment group
(0.006) (0.005) (0.005) (0.007) (0.004)
0.021 -0.023 0.038 0.028 0.046
Control group
(0.007) (0.005) (0.007) (0.007) (0.005)
0.8028 0.437 1.153 1.314 2.483**
Hotelling’s T-squared
[0.423] [0.647] [0.251] [0.266] [0.089]
Employment growth
-0.005 -0.047 0.002 0.023 0.021
Treatment group
(0.006) (0.006) (0.005) (0.007) (0.006)
0.003 -0.041 0.003 0.031 0.035
Control group
(0.005) (0.007) (0.008) (0.009) (0.007)
0.939 0.696 0.299 0.706 1.388
Hotelling’s T-squared
[0.349] [0.487] [0.765] [0.481] [0.166]
Population growth
0.003 0.003 0.006 -0.002 -0.001
Treatment group
(0.002) (0.002) (0.002) (0.001) (0.002)
0.003 0.001 0.003 -0.001 -0.001
Control group
(0.003) (0.002) (0.002) (0.001) (0.001)
0.0704 0.559 1.050 0.567 0.293
Hotelling’s T-squared
[0.944] [0.576] [0.295] [0.571] [0.769]
Note: *** and ** represent significant levels of 1 and 5%, respectively. Standard
deviations are in parentheses. P-values of Hotelling’s T-squared test are in brackets.

Meanwhile, Table XIV represents slopes of per capita income, employment, and

population after the recessions. As shown in the table, there was no statistical difference

in slopes between treatment and control groups. In other words, entrepreneurship did not

contribute to regional economic growth after the economic recession.

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 Table XVI. Difference in Slopes Between Groups After Recessions

Regional performance Slope (95% CI) P-value

Per capita income growth
Treatment group 0.006 (-0.003, 0.015) 0.214
Control group 0.009 (0.006, 0.013) 0.000
Difference in slopes -0.004 (-0.014, 0.006) 0.472
Employment growth
Treatment group 0.012 (0.003, 0.021) 0.001
Control group 0.013 (0.008, 0.012) 0.000
Difference in slopes -0.001 (-0.011, 0.009) 0.852
Population growth
Treatment group -0.001 (-0.002, -0.001) 0.000
Control group -0.001 (-0.002, 0.000) 0.083
Difference in slopes 0.000 (-0.002, 0.001) 0.828

Another important question to be addressed is about the reasons why

entrepreneurship cannot contribute to economic growth after economic recessions. This

question is meaningful in that economic recessions can hamper long-term economic

growth as negative shocks decrease investments in innovations and R&D activities. For

this negative effect of economic downturns, this study expected that entrepreneurs would

increase innovation and productivity.

The disappointing result of entrepreneurship during economic recessions might be

due to the decreases in the number of new firms and investments in innovations caused

by financial constraints. The number of entrepreneurs has significantly decreased during

the last recession due to a lack of financial resources which is not unusual (Haltiwanger,

121
2011). However, the shock of the last recession was especially significant as the housing

values dramatically decreased. It is well known that housing equity takes a significant

portion of a household’s asset (Disney & Gathergood, 2009). With decreased housing

prices, bank loans and venture capital were also rigid during the recession (Fairlie, 2013).

Likewise, the financial constraints can bring a decrease in a number of new firms, and

these might be one reason for similar trends of two groups. Furthermore, it might reflect

that the sullying effect has been stronger than the cleansing effect during the recession.

Moreover, a lack of financial resources leads to a decrease in investment in

innovation and learning. Previous studies have shown that new firms can increase

investment even during recessions (Koellinger, 2008; Latham, 2009), but the evidence

might not be applied to the affected regions during the last recession. Alternatively, the

role of entrepreneurship in economic recessions can differ according to the magnitude of

economic recessions. In other words, entrepreneurs can invest more in their R&D and

main activities when negative effects of a recession are less severe like the recession in

2001. However, the last recession might hamper investment of entrepreneurs by affecting

their perceptions.

Taken together, it is obvious that the effect of entrepreneurship depends on the

attribute of shocks. While entrepreneurs can increase the levels of employment and

population growth in the aftermath of hurricanes, their effects are not found after

economic recessions. From the results, it is inferred that entrepreneurs are more likely to

contribute to regional economic resilience by mitigating the adverse effects of natural

disasters, rather than economic recessions.

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 CHAPTER V

DISCUSSION AND CONCLUSION

As the frequency and impact of external shocks have increased, regional economic

resilience gains theoretical and empirical popularity. This popularity is also the result of

the fact that the concept of resilience offers a general framework to examine whether

regions have an ability to return to their previous status or find a new economic growth

path. In doing so, resilience is used to explain how resilient regions look and why

regional disparity exists after external shocks.

At the same time, the practical issue related to regional economic resilience is that

the concept is far from complete and coherent operationalized and measured. Though

resilience is desirable for a region in a normative manner, there is little explanation as to

how regions can increase their ability to respond to various types of disturbances. Few

studies have attempted to shed light on the factors that make regions resilient. For

instance, human capital, knowledge creation from universities and research

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labs, industry, entrepreneurial activities, and industrial diversity are suggested on the

basis of endogenous growth theory and evolutionary approach of regional economic

growth. However, empirical studies that explore the importance of these factors remain

sparse.

To bridge the gap between theoretical popularity and practical difficulty, this study

posits that regions with more entrepreneur would experience higher levels economic

growth than regions with fewer after experienceing two different types of shocks.. This

argument is based on the previous literature on entrepreneurship, which indicates that

entrepreneurship can contribute to regional economic growth. Taken a step further, this

study adds to the empirical evidence on the role of entrepreneurship by considering

differences in the types of external disturbance. In this light, entrepreneurship is

suggested as a significant factor to mitigate the negative effects of natural disasters and

economic recessions.

In addition, this study differs from previous work dealing with regional economic

resilience. Instead of focusing on a particular shock and measurement, this study

examines the Gulf Coast region where destructive hurricanes and a severe economic

recession occurred. Moreover, regional economic growth is measured by three economic

outputs (changes in per capita income, employment, and population growth rates), each

having different trends and meaning. In doing so, this study provides a balanced approach

to understading regional economic resilience.

The empirical findings of this study are summarized as follows. A dynamic panel

124
analysis reveals that entrepreneurship, measured by the number of new pers per 1,000

population, is positively related to employment and population growth of the affected

regions. It suggests that entrepreneurs play important roles in the recovery of affected

regions by increasing the number of employees and attracting people. However, this

positive impact of role of entrepreneurship on regional economic recovery is not found in

per capita income.

The analysis of the impact of entrepreneurship on regional economc resilience is

extended with a quasi-experimental design. This study compares matched that are

differentiated by rates of entrepreneurship based on propensity score matching. Regions

with high rates of per capita entrepreneurship have higher levels of employment and

population than regions with low rates of entrepreneurship after hurricanes hit. Despite

the fact that the former regions have downward slopes, the absolute values of

employment and population growth are higher than the latter regions. Yet, both regions

show similar levels, intercepts, and slopes once the economic recessions start. This

similiarity means that entrepreneurship does not make any discernable difference on the

measured economic outcomes.

Two conclusions can be inferred from the results of the panel and the quasi-

experiment analyses. This study finds that the effect of entrepreneurship on regional

economic growth depends on which output is measured. As described, the positive effects

are demonstrated in employment and population growth rates, but not in per capita

income. In addition, this study indicates that the effect of entrepreneurship on regional

economic growth differs according to the type of disturbance.

125
 Based on the results of this study, several possible policy implications can be

derived. Timely and effective ways to help small businesses and entrepreneurs after a

natural disaster can speed recovery. During the aftermath of the Hurricane Katrina in

2005, the failure of the SBA loan programs was not a trivial problem. Because the

application process for receiving loans required too much information, it was

prohibitively difficult for many small businesses and entrepreneurs. Though the moral

hazard of fraudulent applications is a plausible problem, it can be argued that the

application process can be improved by removing unnecessary administrative work.

In spite of empirical findings and contributions, this study has several limitations in

terms of external and internal validity. First, as this study mainly focuses on the Gulf

Coast region, the applicability to other regions might be limited. In particular, many

regions (i.e., New Orleans) in Louisiana have experienced a continuous loss of

population and a shrinking regional economy. As Vidgor (2008) suggests, flourishing

regions are more likely to rapidly recover from external shocks than other regions, all

else equal. Hence, the effects of entrepreneurship might be stronger or weaker in other

regional economies.

In line with the external validity issue, the results cannot be generalized to cover all

thypes of shocks in all regions. This study only covers hurricanes as a kind of climatic

disasters. In addition, the magnitudes and effects of external shocks can affect the results.

For instance, the magnitudes of the 2001 recession and the 2008-2009 recessions were

rather different and their impacts were as well.

126
 Second, the results of a quasi-experimental design do not consider regional specific

events and characteristics. In order to draw a causal relationship, this study assumes that

two groups of regions (high and low entrepreneurial regions) are similar except for the

rates of entrepreneurship. The observed covariates that are used as matching variables can

control the difference between two groups to some extent, but unobserved regional

characteristics might affect the results. This is a limitation of a quasi-experimental design.

Furthermore, the research period for the quasi-experimental design is relatively

short. Although it is technically possible to uncover the trend of economic outputs after

hurricanes and recessions, the research period after the hurricanes is not long enough to

examine the role of entrepreneurship in regional economic resilience. Thus, it is desirable

to conduct future studies that isolate the effects of hurricanes or economic recessions and

it is also desirable to track the long term recovery of these counties and parishes.

Despite these limitations and drawbacks, the implications of this study are

meaningful. This work introduces consideration of the role of in regional economic

resilience. In doing so, this demonstrates that entrepreneurs contribute to the economic

recovery of regions affected by natural disasters.

127
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APPENDICES

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 Appendix A. ITSA Results of Per Capita Income Growth

Coefficient
Variable Meaning P-value 95% CI
(S.E)
T Initial slope of control group 0.005 ***
0.000 (0.002, 0.008)
before any treatments (0.001)
Z Initial difference in intercept
0.015
between treatment and control 0.181 (-0.007, 0.037)
(0.011)
group
ZT Initial difference in slope
-0.006 *
between treatment and control 0.068 (-0.012, 0.000)
(0.003)
group before hurricanes
Intercept when hurricanes -0.020 ***
0.008 (-0.034, -0.005)
occurred in control group (0.007)
Difference in slopes of pre- and 0.007
0.139 (-0.002, 0.016)
post- hurricane in control group (0.005)
Difference in the intercept
0.023 **
between treatment and control 0.046 (0.000, 0.047)
(0.012)
group after hurricanes
Difference in the slope between
treatment and control group after -0.002
0.804 (-0.015, 0.012)
hurricane compared to pre- (0.007)
hurricane
Intercept when economic
-0.049 ***
recession occurred in control 0.000 (-0.074, -0.023)
(0.012)
group
Difference in slopes of pre- and -0.003
0.560 (-0.012, 0.007)
post- recession in control group (0.005)
Difference in the intercept
0.027
between treatment and control 0.147 (-0.009, 0.063)
(0.019)
group after economic recessions
Difference in the slope between
treatment and control group after 0.004
0.671 (-0.013, 0.021)
recession compared to pre- (0.009)
recession
Note: Standard errors obtained from Newey-West regressions are in parentheses.

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 Appendix B. ITSA Results of Employment Growth

Coefficient
Variable Meaning P-value 95% CI
(S.E)
T Initial slope of control group 0.004
0.166 (-0.002, 0.009)
before any treatments (0.003)
Z Initial difference in intercept
-0.001
between treatment and control 0.962 (-0.033, 0.030)
(0.016)
group
ZT Initial difference in slope
0.000
between treatment and control 0.939 (-0.008, 0.008)
(0.004)
group before hurricanes
Intercept when hurricanes -0.009
0.405 (-0.031, 0.013)
occurred in control group (0.011)
Difference in slopes of pre- and -0.002
0.804 (-0.016, 0.012)
post- hurricane in control group (0.007)
Difference in the intercept
0.028 *
between treatment and control 0.063 (-0.002, 0.058)
(0.015)
group after hurricanes
Difference in the slope between
treatment and control group after -0.008
0.310 (-0.024, 0.008)
hurricane compared to pre- (0.008)
hurricane
Intercept when economic
-0.028 *
recession occurred in control 0.061 (-0.058, 0.001)
(0.015)
group
Difference in slopes of pre- and 0.011
0.117 (-0.003, 0.025)
post- recession in control group (0.007)
Difference in the intercept
-0.005
between treatment and control 0.828 (-0.052, 0.041)
(0.024)
group after economic recessions
Difference in the slope between
treatment and control group after 0.007
0.407 (-0.009, 0.009)
recession compared to pre- (0.008)
recession
Note: Standard errors obtained from Newey-West regressions are in parentheses.

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 Appendix C. ITSA Results of Population Growth

Coefficient
Variable Meaning P-value 95% CI
(S.E)
T Initial slope of control group -0.001
0.319 (-0.002, 0.001)
before any treatments (0.001)
Z Initial difference in intercept
-0.000
between treatment and control 0.964 (-0.005, 0.004)
(0.002)
group
ZT Initial difference in slope
0.001
between treatment and control 0.156 (-0.000, 0.002)
(0.001)
group before hurricanes
Intercept when hurricanes -0.002
0.669 (-0.014, 0.009)
occurred in control group (0.006)
Difference in slopes of pre- and 0.002
0.425 (-0.003, 0.006)
post- hurricane in control group (0.002)
Difference in the intercept
0.003
between treatment and control 0.643 (-0.009, 0.014)
(0.006)
group after hurricanes
Difference in the slope between
treatment and control group after -0.001
0.751 (-0.006, 0.004)
hurricane compared to pre- (0.002)
hurricane
Intercept when economic
0.005
recession occurred in control 0.410 (-0.006, 0.015)
(0.005)
group
Difference in slopes of pre- and -0.002
0.312 (-0.007, 0.002)
post- recession in control group (0.002)
Difference in the intercept
-0.006
between treatment and control 0.298 (-0.017, 0.005)
(0.006)
group after economic recessions
Difference in the slope between
treatment and control group after -0.001
0.918 (-0.005, 0.005)
recession compared to pre- (0.003)
recession
Note: Standard errors obtained from Newey-West regressions are in parentheses.

173