Entrepreneurship–growth nexus: does the size of the informal economy matter?

Abstract

This paper implements a multiple linear regression model on panel data of a sample of 64 countries over the period (2002–2015), in order to examine the influence of Entrepreneurship on the growth of output per worker. Our estimation strategy allows for providing a framework that accounts for some of the conflicting findings on the entrepreneurship–growth nexus. We account for the endogeneity of entrepreneurship by using a valid instrument, and for the level of development and its interaction with entrepreneurship, we also account for the size of the informal economy as a moderating variable of the entrepreneurship– growth nexus. We find that the effect of entrepreneurship on growth is positive and significant, but the analysis fails to support that the relation varies by level of development and the size of the informal economy. Policy implications point to fostering entrepreneurship and designing policies that take into consideration the macroeconomic environment of the country.