Impact of Entrepreneurship on Economic Growth in selected Developed and Developing Countries: Exploring the Role of Institutions

Abstract

This study explores a new stream of research shedding light on the influence of entrepreneurship on economic growth by exploring the role of formal (government effectiveness & political stability) and informal (control of corruption & freedom to trade internationally) institutions. Two Step System Generalized Method of Moments (SGMM) was used to analyze the unbalanced panel dataset of thirty-six developed and developing countries for the time period 2002-2017. The empirical results of the study revealed a conclusive effect of entrepreneurship on economic growth of the sample countries.  Furthermore, informal institutions have a greater impact on entrepreneurship than formal institutions. Institutional variables like government effectiveness, control of corruption, freedom to trade internationally and political stability have robust, conclusive and significant effects on economic growth in all the countries. The study results confirmed that formal and informal institutions can further strengthen the relationship between entrepreneurship and economic growth. From the study results we concluded that development of entrepreneurial activities along with strong institutions are mandatory for faster economic growth and should be the primary focus of development policy.