Are Genetics and Environment Substitutes or Complements in Affecting Entrepreneurial Choice?

Recent twin and adoption studies have shown that genes matter for entrepreneurial choice. This related study addresses how a genetic predisposition to entrepreneurship interacts with the (entrepreneurship friendliness of the) environment, using a dataset of Italian twins. In particular, we study whether the genetic effect is different across genders, based on the stylized fact that barriers to entrepreneurship entry are stronger for females than for males. Using regression analysis, the study confirms earlier findings showing substantial genetic effects. More interestingly, the study finds that the genetic effect drops when the environment is less favorable – namely when the individual is female. The result of a positive interaction between predisposition and environment implies that the environment and predisposition can be considered complements rather than substitutes, that institutions play a role, and that a favorable environment to entrepreneurship selects those with higher predisposition rather than simply increasing the rate of self-employment.