Entrepreneurship Vulnerability to Business Cycle. A New Methodology for Identification Pro-cyclical and Counter-cyclical Patterns of Entrepreneurial Activity

In literature, there is ongoing discussion whether entrepreneurial activity, approximated by, for instance, changes in self-employment, tends to behave pro-cyclically, counter-cyclically or rather is a-cyclical. Thus far, both theoretical and empirical evidence, where various multiple methodological approaches are used, does not provide clear answer to the latter; while widely offered explanations are scattered and lack robustness. This paper is designed to contribute to the present state of the art, by presenting a novel methodological approach to identification of the relationship between the intensity of entrepreneurial activity and business cycle. Put differently, we aim unveil if entrepreneurship (approximated by changes in self-employment) behaves pro-cyclically, counter-cyclically or a-cyclically. To exemplify our new conceptual approach, we use quarterly data on deflated gross domestic product and self-employment. The empirical evidence presents the case of Italy. The period of analysis is restricted to the years 1995-2014. All statistics are extracted from OECD datasets on Annual Labor Force and Gross Domestic Product.