Business creation, as the process of starting and growing businesses, is a key driver of economic growth. The ability to recognize and exploit opportunities is central to the entrepreneurial mindset, but other factors contribute to the success of a new venture. These include personal characteristics, such as perception of opportunities and self-efficacy (Stevenson Reference Stevenson2000) and socialization, which includes the ability to learn from those who have already created successful companies and acquire and internalize the attitudes and aptitudes unique to entrepreneurs.
It is possible that some states have experienced a genuine “startup surge” during the pandemic, as suggested by the Economic Innovation Group (EIG). However, many states also saw a rise in business applications even before the pandemic, which could explain why their share of projected employer businesses is higher than Mississippi’s.
While it is clear that many start-up efforts will not survive, a small gain in the proportion that do become profitable can translate into major benefits. Thus, policy makers are interested in ways to increase the rate of business creation. This may require reducing the social costs associated with business formation, and it will certainly entail increasing the number of new firms that reach profitability.
This study will shed light on the complex interplay between these variables, by analyzing both personal and social influences on business creation using data from Latin America. Specifically, it will investigate the relevance of four factors highlighted in the literature: perception of opportunities, risk tolerance and fear of failure, as well as the effect of knowing an entrepreneur.