THE IMPACT OF ENTREPRENEURSHIP ON ECONOMIC GROWTH IN THE DEVELOPING COUNTRIES: A PANEL DATA APPROACH

Abstract

The purpose of this paper is to examine the relationship between entrepreneurship, and economic growth. We use real GDP per worker to measure growth as dependent variable; and entrepreneurship measured by the Global Entrepreneurship Index (GEI), Business Freedom (BUSfr), and Starting a Business (STRbus) as independent variables; and several control variables. The data consists of 18 developing countries for the period 2004–2019. Based on Romer’s assumption (Romer, 1986), we use a specification of an augmented Cobb-Douglas production function to test the effect of entrepreneurship on growth in developing countries. We employ two estimation methods which are Static Panel Data Method and Generalized Method of Moments (GMM) to carry out the work. Our results suggest that in static model, the impact of only ‘Starting Business’ entrepreneurship variable has a significantly positive impact on growth in developing countries. The dynamic panel GMM estimation indicate that all entrepreneurship measures; 'Global Entrepreneurship Index’, ‘Business Freedom’ and ‘Starting a Business, have significantly positive impacts on growth in developing countries.