Examining the Threshold Effect of Entrepreneurship on Economic Growth: A Dynamic Threshold Panel Approach

Abstract

The current research aims to explore the effects of entrepreneurship on economic growth in a sample of 35 emerging countries from 2006 to 2020, considering that these effects might not follow a simple linear and predictable pattern. In other words, this study strives not only to assess the positive or negative impact of entrepreneurship on economic growth but also to analyze the nonlinear and more intricate variations of these effects. This research utilizes entrepreneurship density data provided by the World Bank and employs the innovative dynamic threshold panel approach proposed by Seo and Shin (2016) and Seo et al. (2019) to investigate the threshold effect of entrepreneurship on economic growth. The results of this study indicate that achieving a meaningful and positive impact of entrepreneurship on economic growth in developing countries requires a minimum density of approximately 3.25 entrepreneurs per 1000 people. This finding suggests that policymakers should create an environment that not only promotes entrepreneurship but also strengthens it to reach this crucial threshold for economic growth. Additionally, when variables such as per capita income, trade openness, financial development, and income from natural resources exceed a certain threshold level, the significant effect of entrepreneurship on economic growth becomes evident. These findings are of great importance for policymakers, particularly in developing countries interested in enhancing entrepreneurship and economic growth, as they can utilize this information to design effective policies and initiatives. The identification of the threshold level of entrepreneurial activity and the consideration of contextual factors provides policymakers with practical insights for policy and initiative design.

Keywords

• economic growth
• dynamic threshold panel approach
• entrepreneurship density
• emerging countries