Understanding GEI

GEI Sub-indexes

GEDI
The Global Entrepreneurship Index (GEI) is comprised of three sub-indexes that capture the contextual features of entrepreneurship across individual and institutional variable.

For the first sub-index, entrepreneurial attitudes are defined as the general disposition of a country’s population toward entrepreneurs, entrepreneurship, and business start-ups. The index involves measures for the population’s opportunity perception potential, the perceived start-up skills, feel of fear of failure, networking prospects, and cultural respect for the entrepreneur.

For the second sub-index, entrepreneurial activity is defined as the start-up activity in the medium- or high- technology sector initiated by educated entrepreneurs in response to business opportunities in a somewhat competitive environment. The choice of indicators used to build this sub-index reflects the belief that opportunity entrepreneurs are better prepared, possess superior skills, and earn more than necessity entrepreneurs (Bhola, Verheul, Thurik, & Grilo, 2006; Block & Wagner, 2006). Operating in the technology sector is important, as high rates of start-ups in most factor-driven countries are mainly in the traditional sectors and do not represent high potential (Acs & Varga, 2005). The entrepreneur’s level of education is another important feature of a venture with high growth potential (Bates, 1990). And cut-throat competition may hinder business existence and growth, so a lower number of competitors improve chances of survival, as well as future development prospects (Baumol et al., 2007).

The third sub-index, entrepreneurial aspiration, is defined as the efforts of the early-stage entrepre-neur to introduce new products and services, develop new production processes, penetrate foreign markets, substantially increase the number of firm employees, and finance the business with either formal or informal venture capital, or both. Product and process innovation, internationalisation, as well as high growth are included in the measure. The capability to produce or sell products that customers consider to be new is one of Schumpeter’s forms of creating ‘new combinations’ (Schumpeter, 1934). Applying or creating new technology and production processes are another important feature of businesses with high growth potential (Acs & Varga, 2005). The role of ‘gazelles’ or high-growth businesses is also vital to entrepreneurship as are internationalisation of trade and the availability of risk capital.

A schematic diagram of GEI and its sub-indexes is presented in Figure 2.

Global Entrepreneurship Index

Entrepreneurial Attitudes Sub-Index
  • Cultural Support
  • Networking
  • Nonfear of Failure
  • Startup Skills
  • Opportunity Perception
Entrepreneurial Activities Sub-Index
  • Competition
  • Quality of Humna Resources
  • Technology Sector
  • Opportunity Startup
Entrepreneurial Aspirations Sub-Index
  • Risk Capital
  • Internationalisation
  • High Growth
  • New Tech
  • New Product

All Sub-Indexes are Not Equal, and Some Can Even Hurt

It must be noted that the three entrepreneurial sub-indexes are not of equal importance. The attitude sub-index measures society’s basic attitudes toward entrepreneurship through education and social stability. The activity sub-index measures what individuals are actually doing to improve the quality of human resources and technological efficiency. The aspiration sub-index measures how much of the entrepreneurial activity is being directed toward innovation, high-impact entrepreneurship, and globalisation.

It must also be noted, that because entrepreneurship is a complex social phenomena, the attributes used in the sub-indexes, are more powerful collectively than they are individually. This is what makes true entrepreneurship, the killer application for sustainable economic development.

Therefore GEI is built using configuration theory, which lowers sub-index scores if there is a shortage or low level score on its components. The low scores can act as ‘bottlenecks’ to entrepreneurship and can therefore have negative results on entrepreneurial activity. The wider the range between low and high scores, the more severe the ‘bottleneck’ penalty applied. The most entrepreneurial economies are both broad and deep across most of the components of the 3 GEI sub-indexes: Attitudes, Activity, and Aspirations.

Sequence Matters

Additionally, the sequence of these sub-indexes in development is also important. Attitudes are an essential prerequisite for either activity or aspirations. This is in part cultural, as certain societies (e.g., communism and feudalism) outlawed entrepreneurship.

Attitude is followed by activity, and after activity aspirations become important. In some sense, this process is cumulative over time; however it has large overlaps as well. Figure 3 depicts the sub-index that corresponds to each stage of economic development.

  1. Attitudes - key focus for Factor-Driven Economies
  2. Activity - key focus for Efficiency-Driven Economies
  3. Aspirations - key focus for Factor-Driven Economies

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