The Relationship between Entrepreneurship and Economic Development: Is it U-Shaped?

Abstract:     
Following a centuries-long decline in the rate of self-employment, a discontinuity in this downward trend is observed for many advanced economies starting in the 1970s and 1980s. In some countries the rate of self-employment appears to increase. At the same time, cross-sectional analysis shows a U-shaped relationship between start-up rates of enterprise and levels of economic development. We provide an overview of the empirical evidence concerning the relationship between independent entrepreneurship, also known as self-employment or business ownership, and economic development. We argue that the reemergence of independent entrepreneurship is based on at least two 'revolutions.' If we distinguish between solo self-employed at the lower end of the entrepreneurship spectrum, and ambitious and/or innovative entrepreneurs at the upper end, many advanced economies show a revival at both extremes. Policymakers in advanced economies should be aware of both revolutions and tailor their policies accordingly.

Number of Pages in PDF File: 82

Keywords: entrepreneurship, self-employment, business ownership, business start-ups, economic development, U-shape, L-shape

JEL Classification: L26, J24, M13, O14, O31

Accepted Paper Series