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A Panel Threshold Model to Capture the Nonlinear Nexus between Public Policy and Entrepreneurial Activities in EU Countries

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  • Oana-Ramona Lobonț

    (Finance Department, Faculty of Economics and Business Administration, West University of Timisoara, 300223 Timișoara, Romania)

  • Ana-Cristina Nicolescu

    (Finance Department, Faculty of Economics and Business Administration, West University of Timisoara, 300223 Timișoara, Romania)

  • Florin Costea

    (Doctoral School of Economics and Business Administration, West University of Timisoara, 300223 Timișoara, Romania)

  • Zheng-Zheng Li

    (School of Economics, Qingdao University, Qingdao 266071, China)

  • Alexandra-Mădălina Țăran

    (Doctoral School of Economics and Business Administration, West University of Timisoara, 300223 Timișoara, Romania)

  • Adriana Davidescu

    (Department of Statistics and Econometrics, Bucharest University of Economic Studies, 010374 Bucharest, Romania)

Abstract

This paper explores the relationship between public policy and entrepreneurial activity in EU countries by using the panel threshold model. The paper was fundamental based on and confirmed the psychological threshold theory; namely, the results showed a single threshold effect between government effectiveness and entrepreneurial activity. Government public policy boosts entrepreneurial activity at the first segment, but the promotion effect becomes relatively slow after the threshold value. When separating the EU countries into efficiency-driven and innovation-driven countries, the threshold effect only existed in innovation-driven countries. After the threshold value, governance effectiveness hindered entrepreneurial activity, because saturation and excessive regulations impeded business in these countries. In essence, it is not a matter of working harder or winding down but a matter of promoting a moderate public policy, which is indeed necessary for the government to encourage entrepreneurial activity. Ultimately, keeping economic growth stable is essential for a favorable entrepreneurial environment.

Suggested Citation

  • Oana-Ramona Lobonț & Ana-Cristina Nicolescu & Florin Costea & Zheng-Zheng Li & Alexandra-Mădălina Țăran & Adriana Davidescu, 2022. "A Panel Threshold Model to Capture the Nonlinear Nexus between Public Policy and Entrepreneurial Activities in EU Countries," Mathematics, MDPI, vol. 10(8), pages 1-15, April.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:8:p:1265-:d:791370
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