Pakistan Institute of Development Economics



Factors Explaining the Risk Attitude towards Entrepreneurship inPakistan: An Exploratory Analysis

This study empirically identifies factors which explain theattitude of individuals towards entrepreneurship, and how attitudestoward risk influence the likelihood of a person turning entrepreneur.The variable ‗fear of failing‘ serves as a proxy variable reflectingrisk aversion, as contained in the dataset compiled by the GlobalEntrepreneurship Monitor (GEM), through interviews of a sample of 2,007respondents from Pakistan, in 2010. Given that the dependent variable isof binary nature, the probit model is used to empirically determine asto how various demographic, and perceptual factors influence riskaversion among the country‘s citizens, particularly in the context ofstarting their own businesses. The results suggest that personallyknowing other entrepreneurs, who have launched a business in the pasttwo years is the most significant variable affecting risk attitudesamong Pakistanis; specifically, those who personally know entrepreneursare more likely to have a fear of failure, with marginal effects as highas 8 percent. Meanwhile, individuals who feel that society generallyapproves of entrepreneurship as a career choice are around 5 percentless likely to fear failure, though this is a weak correlation. A numberof other variables—which are reported in the literature to havesignificant correlation with risk attitudes in a global context—are notfound to be correlated at traditional significance level for Pakistan.In addition, the study does not reveal systematic differences in therisk attitude of individuals hailing from urban and rural areas, or atprovincial level. We suggest some preliminary implications based on thefindings, and also identify a potential avenue for follow-up research.JEL Classification: L26; M13; O53 Keywords: Entrepreneurship; EmergingEconomy; Risk Aversion

Mohammed Nishat,

Talha Nadeem