The Economic Impact of Entrepreneurship: Comparing International Datasets

Abstract

Research Question/Issue: What is the impact of entrepreneurship on GDP/capita, unemployment, exports/GDP, and patents per population across countries? Is the impact of entrepreneurship mitigated by legal and cultural differences across countries? Do different international datasets provide different answers to these questions? We empirically compare the impact of entrepreneurship on GDP/capita, unemployment, exports/GDP, and patents per population across countries by examining three datasets from the World Bank, the OECD, and Compendia.

Research Findings/Insights: Based on a comprehensive sample of all available countries and years, with the World Bank data being the most comprehensive, we find entrepreneurship has a significantly positive impact on GDP/capita, exports/GDP, and patents per population, and a negative impact on unemployment. Inferences from the Compendia data are very consistent. By contrast, inferences from the OECD data are not supportive of any of these propositions.

Theoretical/Academic Implications: Our findings point to institutional and cultural impediments to the effectiveness of entrepreneurship. Most notably, the impact of entrepreneurship is significantly mitigated by excessively strong creditor rights that limit entrepreneurial risk taking. Furthermore, the data indicate cultural attitudes that are associated with low risk taking limit the effectiveness of entrepreneurship. By contrast, the impact of entrepreneurship on exports/GDP does not appear to be directly tied to costs of exporting, which is perhaps best explained by the new economy goods and services created by entrepreneurs that depend less on such costs. For some subsets of the data we find evidence consistent with the view that top tier venture capital funds enhance the impact of entrepreneurship on GDP/capita. Finally, our results show how different definitions of new business entry matter for empirical analysis of entrepreneurship across countries.

Practitioner/Policy Implications: The data highlight the importance of access to finance without downside costs so that entrepreneurs are encouraged to take risk. Further, the data highlight institutional differences in risk attitudes more generally inhibit risk taking and thereby limit the effectiveness of entrepreneurship. As well, the data highlight a central role for careful measurement of entrepreneurial activities and for inclusion of as many countries and years as possible in order to effectively analyze the impact of entrepreneurship.

Keywords: Entrepreneurship, Law and Economics, Credit, Governance and Risk-Taking, Uncertainty Avoidance, Culture, Exports, Unemployment, Patents, Venture Capital

JEL Classification: L26, G24