Munich Personal RePEc Archive

Entrepreneurship, Institutions, and Economic Growth: Does the Level of Development Matter?

Boudreaux, Christopher and Caudill, Steven (2019): Entrepreneurship, Institutions, and Economic Growth: Does the Level of Development Matter?

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Abstract

This study questions the assumption that entrepreneurship unequivocally leads to economic growth. Using insights from institutional theory and development economics, we reevaluate entrepreneurship’s contribution towards economic growth. Our study uses Global Entrepreneurship Monitor (GEM) data for a panel of 83 countries from 2002 to 2014 and highlights several important findings. First, our evidence suggests that entrepreneurship encourages economic growth but not in developing countries. Second, we find that a country’s institutional environment—measured by GEM’s Entrepreneurial Framework Conditions (EFCs)—contributes to economic growth in more developed countries but not in developing countries. Lastly, we find that opportunity-motivated entrepreneurship encourages economic growth in developed countries, while necessity-motivated entrepreneurship discourages economic growth in developing countries. These findings have important policy implications. Namely, our evidence contradicts policy proposals that suggest entrepreneurship and the adoption of pro-market institutions that support it will encourage economic growth in developing countries. Our evidence suggests these policy proposals are unlikely to generate the desired economic growth.

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