Entrepreneurship and Economic Growth: Evidence from GEM Data

Abstract: There is a widespread perception among scholars and policymakers that a link exists between entrepreneurship and GDP growth. Based on data from 33 OECD countries between 2001 and 2011, this essay aims to empirically investigate the impact of entrepreneurship on economic growth. More specifically, this essay seeks to analyze how entrepreneurship contributes to different types of economic growth. In doing so, I distinguish between two types of economic growth: intensive growth, measured as GDP growth, and inclusive growth, measured as real disposal household income. The empirical results provide three main findings. First, the results show strong support of a positive relationship between entrepreneurship and intensive growth, applying both an OLS and 2SLS method. The latter method is used in an attempt to reduce possible endogeneity of entrepreneurship. Second, a non-linear relationship between entrepreneurship and intensive growth seems to exist. Third, using an Error Correction Model (ECM) for panel data, this essay find strong support for a positive long-run relationship between entrepreneurship and inclusive growth. However, this result does not appear in the short-run. This study confirms previous research on the relationship between entrepreneurship and intensive growth. In addition, the significant effects on inclusive growth have, to the best of my knowledge, never been shown empirically before within the OECD countries. Thus, this study ad further to the current entrepreneurial literature by showing that entrepreneurship not only affects GDP growth but also inclusive growth.