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The two-way relationship between entrepreneurship and economic performance

Author

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  • André van Stel
  • Roy Thurik
  • Chantal Hartog
  • Simon Parker

Abstract

This paper examines the two-way relationship between entrepreneurship and economic performance, using a harmonized data set covering 21 OECD countries in the period 1981-2006. While the relation between entrepreneurship and economic performance has been investigated extensively, most papers in this research field suffer from one or more methodological flaws, so that the important question: "does entrepreneurship cause economic performance?" can still not be answered up till the present day. In this paper we investigate the relationship in a Vector Error Correction Model (VECM) framework. We find evidence for the existence of a long-run equilibrium relation between the level of business ownership and per capita income. We also find evidence that increases in business ownership actually cause economic growth. However, our impulse response analysis reveals that the effect depends on the number of business owners already present in the economy, i.e. we find decreasing marginal returns to entrepreneurship. We also find that the effect depends on the size of the shock (i.e. the increase in entrepreneurship), where too big shocks may lead to negative effects on GDP due to 'overshooting'.

Suggested Citation

  • André van Stel & Roy Thurik & Chantal Hartog & Simon Parker, 2010. "The two-way relationship between entrepreneurship and economic performance," Scales Research Reports H200822, EIM Business and Policy Research.
    • Handle: RePEc:eim:papers:h200822
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    File URL: http://www.entrepreneurship-sme.eu/pdf-ez/H200822.pdf
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Scottish entrepreneurial buzz, or needs must?
      by Brian Ashcroft in Scottish Economy Watch on 2012-11-18 06:26:14

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    Cited by:

    1. Ryan M. Yonk & Sierra Hoffer & Devin Stein, 2017. "Disincentives To Business Development On The Navajo Nation," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 22(02), pages 1-18, June.
    2. Molina, Jose Alberto & Ortega, Raquel & Velilla, Jorge, 2017. "Older entrepreneurs-by-necessity using fuzzy set methods: differences between developed and developing countries," MPRA Paper 76982, University Library of Munich, Germany.
    3. Michael Fritsch & Florian Noseleit, 2013. "Indirect employment effects of new business formation across regions: The role of local market conditions," Papers in Regional Science, Wiley Blackwell, vol. 92(2), pages 361-382, June.
    4. Fritsch, Michael, 2013. "New Business Formation and Regional Development: A Survey and Assessment of the Evidence," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 9(3), pages 249-364, February.
    5. José Ernesto Amorós & Luciano Ciravegna & Vesna Mandakovic & Pekka Stenholm, 2019. "Necessity or Opportunity? The Effects of State Fragility and Economic Development on Entrepreneurial Efforts," Entrepreneurship Theory and Practice, , vol. 43(4), pages 725-750, July.
    6. Heike Delfmann & Sierdjan Koster, 2016. "The effect of new business creation on employment growth in regions facing population decline," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(1), pages 33-54, January.
    7. Tomohiro Sakai & Mototsugu Fukushige, 2021. "Formal and informal support and the performance of new start-ups: a quantile regression analysis," SN Business & Economics, Springer, vol. 1(9), pages 1-21, September.
    8. David Urbano & Sebastian Aparicio & Victor Querol, 2016. "Social progress orientation and innovative entrepreneurship: an international analysis," Journal of Evolutionary Economics, Springer, vol. 26(5), pages 1033-1066, December.
    9. Christian Nedu Osakwe & Nahanga Verter & Věra Bečvářová & Miloslava Chovancová, 2015. "SMEs Growth in the Czech Republic: Some Macroeconomic Perspectives," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 63(6), pages 2077-2084.
    10. Michael Fritsch, 2011. "The effect of new business formation on regional development - Empirical evidence, interpretation, and avenues for further research," Jena Economics Research Papers 2011-006, Friedrich-Schiller-University Jena.
    11. Michael Fritsch, 2012. "Methods of analyzing the relationship between new business formation and regional development," Jena Economics Research Papers 2012-064, Friedrich-Schiller-University Jena.
    12. André Stel & Sander Wennekers & Gerard Scholman, 2014. "Solo self-employed versus employer entrepreneurs: determinants and macro-economic effects in OECD countries," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 107-136, June.
    13. Ondřej Dvouletý & Alisa Gordievskaya & David Anthony Procházka, 2018. "Investigating the relationship between entrepreneurship and regional development: case of developing countries," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 8(1), pages 1-9, December.
    14. Heike Delfmann & Sierdjan Koster, 2016. "The effect of new business creation on employment growth in regions facing population decline," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(1), pages 33-54, January.
    15. Heike Delfmann & Sierdjan Koster, 2014. "New firm formation and its effect on employment growth in declining regions," ERSA conference papers ersa14p1133, European Regional Science Association.
    16. Jae Teuk Chin, 2020. "Location Choice of New Business Establishments: Understanding the Local Context and Neighborhood Conditions in the United States," Sustainability, MDPI, vol. 12(2), pages 1-17, January.

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