Entrepreneurship and business cycles: Global evidence

Ho, Sin-Yu and Beri, Parfait (2025): Entrepreneurship and business cycles: Global evidence.

Abstract

This study examines the interplay between business cycles and entrepreneurship using data from 172 countries spanning 1990 to 2022. We employ the State Space model, panel vector autoregressive models, and the Granger non-causality tests and unravel three key insights. First, entrepreneurship exerts hysteresis, albeit with weak persistence. Second, entrepreneurship exhibits a countercyclical relationship with business cycles measured by both output and unemployment cycles, suggesting that high unemployment during global recessions may push individuals to start new businesses. These countercyclical results remain robust to structural breaks across different sub-sample periods. Third, entrepreneurship acts as a lagging indicator of business cycles, meaning changes in output and unemployment precede changes in entrepreneurial activity. Further analysis indicates that these findings are primarily driven by upper-middle and high-income countries. We conclude by discussing the policy implications of these results and outlining promising directions for future research.

• Item Type: MPRA Paper
• Language: English
• Keywords: business cycles, entrepreneurship, self-employment, unemployment, economic growth
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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