Are Entrepreneurs Born Or Made?

A new NBER working paper explores this and many other questions (abstract; emphasis added):

Smart and Illicit: Who Becomes an Entrepreneur and Does it Pay?
Ross Levine, Yona Rubinstein

We disaggregate the self-employed into incorporated and unincorporated to distinguish between “entrepreneurs” and other business owners. The incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits. Besides coming from higher-income families with better-educated mothers, the incorporated—as teenagers—scored higher on learning aptitude tests, had greater self-esteem, and engaged in more aggressive, illicit, risk-taking activities. The combination of “smarts” and “aggressive/illicit/risk-taking” tendencies as a youth accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to a large literature, we also find that entrepreneurs earn much more per hour than their salaried counterparts.

Are Entrepreneurs Born Or Made?

A new NBER working paper explores this and many other questions (abstract; emphasis added):

Smart and Illicit: Who Becomes an Entrepreneur and Does it Pay?
Ross Levine, Yona Rubinstein

We disaggregate the self-employed into incorporated and unincorporated to distinguish between “entrepreneurs” and other business owners. The incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits. Besides coming from higher-income families with better-educated mothers, the incorporated—as teenagers—scored higher on learning aptitude tests, had greater self-esteem, and engaged in more aggressive, illicit, risk-taking activities. The combination of “smarts” and “aggressive/illicit/risk-taking” tendencies as a youth accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to a large literature, we also find that entrepreneurs earn much more per hour than their salaried counterparts.

Twitter, Finally

Yes, I finally took the plunge. And I’m half regretting it already, as it looks like a great way to waste time. FWIW, you can follow me (the link is on the right hand column of the page), but I make no promises to be too actively involved tweeting.

The Paradox Of Plenty

There’s this somewhat understandable idea that because Malaysia is rich in natural resources, we are…well, rich. Or at least we should be, if the government had handled things properly.

If only we could harness our reserves of oil and gas and minerals effectively and efficiently…

If only we had invested in and boosted the productivity of our agricultural sector…

If only we managed our forests and bio-diversity for sustainable development…

If only natural resource extraction wasn’t subject to leakages and corruption…

If only, if only…

But there’s a slight problem with this mindset – the empirical evidence suggests that natural resources alone do not beget wealth or prosperity, that focusing on developing such assets actually undermines the foundation of long term growth and prosperity. In fact, in development circles, it’s more common to speak of natural resources as a “curse”, not a blessing.

The Role Of Credit Ratings: No Replacement On The Horizon

Credit rating agencies aren’t perfect – in fact, far from it. Ratings can sometimes (often?) be inaccurate guides to the potential for debt defaults, and the consistency and integrity of ratings can and have been questioned. The business model used by most credit rating agencies globally, where debt issuers pay for ratings on their own debt, is subject to potentially considerable conflicts of interest.

Unfortunately, attempts to find a replacement have come up with alternatives that are even worse (abstract):

Replacing Ratings
Bo Becker, Marcus Opp

Since the financial crisis, replacing ratings has been a key item on the regulatory agenda. We examine a unique change in how capital requirements are assigned to insurance holdings of mortgage-backed securities. The change replaced credit ratings with regulator-paid risk assessments by Pimco and BlackRock. We find no evidence for exploitation of the new system for trading purposes by the providers of the credit risk measure. However, replacing ratings has led to significant reductions in aggregate capital requirements: By 2012, equity capital requirements for structured securities were at $3.73bn compared to of $19.36bn if the old system had been maintained. These savings reflect the new measures of risk, and new rules allowing companies to economize on capital charges if assets are held below par. These book-value adjustments dilute the predictive power of the underlying risk measures, Our results are consistent with a regulatory change being largely driven by industry interests rather than maintaining financial stability.

Somehow, getting fund managers and private equity firms to do portfolio risk assessments strikes me as a little bit like putting the fox in charge of the hen house.

Driven by “industry interests”, indeed.

Technical Notes

Bo Becker, Marcus Opp, "Replacing Ratings", NBER Working Paper No. 19257, July 2013

Waiting For GST

There’s a famous play by Samuel Beckett called “Waiting for Godot”, where two characters hang around, talking and interacting, waiting for someone who never turns up. Malaysia’s GST saga, by turns tragic and comedic, definitely falls into the same mould.

Now it seems that at long last, Godot might actually arrive (excerpt):

GST implementation a must

KUALA LUMPUR: The implementation of a goods and services tax (GST) is a must and not an option.

Secretary-General of Treasury Tan Sri Dr Mohd Irwan Serigar Abdullah said at the half-year Economic Transformation Programme (ETP) update that the Government was trying its best to include it in Budget 2014 if everyone was agreeable to it.

Dr Mohd Irwan added that it would only be in place in 2015 if the Government announced it in the coming budget as it would take 14 months for the GST to be implemented.

Subsidy Rationalisation Rebooted

It’s about time (excerpt):

RON95 goes up by 20 sen

PUTRAJAYA: The price of RON95 petrol and diesel has been increased by 20 sen, as one of the measures to rationalise subsidies by the Government to reduce the country’s fiscal deficit.

Prime Minister Datuk Seri Najib Tun Razak announced the decision, saying that it would save the Government RM1.1bil from September to December this year and RM3.3bil annually.

Before the revision, the price for RON95 was RM1.90 per litre and RM1.80 for diesel. The [sic} price increase for RON95 was in 2010.

2012 International Investment Position

I won’t touch too much on the 2Q2013 balance of payments which came out with GDP to weeks ago, but I thought it might be better to concentrate on something more pertinent, and quite a bit easier to understand. For all the potential for the current account to turn negative (with all the attendant consequences), it’s still only one part of a bigger picture that is the international investment position of the country.

The 2012 IIP report came out at the same time as the BOP, and shows a negative position for Malaysia, for the first time since 2007 (RM millions):

June 2013 Employment

Released along with the report on the July CPI was the employment report for June, and it’s certainly at odds with the prevailing market sentiment (‘000):

July 2013 Consumer Prices

Overshadowed by last week’s release of GDP data were five (count’em, five) other important data releases, one of which was the report on July consumer prices. Needless to say, the report showed accelerating price increases (log annual and monthly changes; 2000=100):

2Q2013 National Accounts

Yesterday’s GDP release showed the Malaysian economy continuing to expand, but well below expectations (log annual changes, 2005=100):

Corruption Is Higher Than Perceived

From a recent World Bank policy research working paper (abstract):

Misunderestimating corruption
Kraay, Aart; Kraay, Aart; Murrell, Peter

Summary: Estimates of the extent of corruption rely largely on self-reports of individuals, business managers, and government officials. Yet it is well known that survey respondents are reticent to tell the truth about activities to which social and legal stigma are attached, implying a downward bias in survey-based estimates of corruption. This paper develops a method to estimate the prevalence of reticent behavior, in order to isolate rates of corruption that fully reflect respondent reticence in answering sensitive questions. The method is based on a statistical model of how respondents behave when answering a combination of conventional and random-response survey questions. The responses to these different types of questions reflect three probabilities -- that the respondent has done the sensitive act in question, that the respondent exhibits reticence in answering sensitive questions, and that a reticent respondent is not candid in answering any specific sensitive question. These probabilities can be estimated using a method-of-moments estimator. Evidence from the 2010 World Bank Enterprise survey in Peru suggests reticence-adjusted estimates of corruption that are roughly twice as large as indicated by responses to standard questions. Reticence-adjusted estimates of corruption are also substantially higher in a set of ten Asian countries covered in the Gallup World Poll.