Uncertainty Avoidance and the Rate of Business Ownership across 22 OECD Countries, 1976-2000

This paper deals with the influence of cultural attitudes towards uncertainty on the level of business ownership across countries. First, the concepts of uncertainty and risk are elaborated, as well as their relevance for entrepreneurship. Second, cross-sectional regression analysis using data for three separate years in twenty Western countries and Japan and controlling for GDP per capita, yields evidence that uncertainty avoidance is positively correlated with the prevalence of business ownership. This surprising finding suggests that a personal trait (risk aversion) and its related cultural characteristic (uncertainty avoidance) may have a diverging impact on entrepreneurship. Possibly, a climate of uncertainty avoidance in large organizations pushes enterprising individuals towards self-employment. Third, we carry out pooled panel regressions with respect to business ownership rates in two distinct cultural country clusters for the years 1976, 1988 and 2000. In the group of high-uncertainty avoidance countries a strongly negative relationship between GDP per capita and the level of business ownership is found, suggesting that rising opportunity costs of entrepreneurship are the dominant perception in this cultural environment. In a group of low-uncertainty avoidance countries no such influence of per capita income is found, but the profits associated with being self-employed are positively associated with business ownership.