The effect of entrepreneurship on national economic growth: An analysis using the GEM database

The increased importance of knowledge as a source of competitiveness for modern economies suggests that the organization of industries most conducive to innovative activity and unrestrained competition will be linked to higher growth rates. Entrepreneurial activity is generally assumed to be an important aspect of this organization. In the present paper we investigate whether a new and promising concept, Total Entrepreneurial Activity, influences GDP growth for 36 countries in a recent period. We will also test whether this influence depends upon the level of economic development measured as GDP per capita. With this test we aim to investigate to what extent the role of entrepreneurship has changed in the last decades of the 20 century. Although the limited number of observations does not allow for many competing explanatory variables, we will examine the role of the so-called Growth Competitiveness Index. This variable captures a range of alternative explanations for achieving sustained economic growth. In addition, we incorporate the initial level of economic development to correct for convergence. We find that entrepreneurial activity indeed affects economic growth, but that this effect depends upon the level of per capita income. This suggests that entrepreneurship plays a different role in countries in different stages of economic development.