The entrepreneurship-unemployment nexus in Croatia

Purpose - The purpose of this paper is to extend the literature on the entrepreneurship-unemployment nexus to the case of Croatia. Design/methodology/approach - The study uses the Toda-Yamamoto causality test within a vector autoregressive model to determine the causal dynamics between the self-employment rate (SER), unemployment rate (UR), industrial production, and credit in the case of Croatia from March 1998 to December 2016. Findings - The results reveal support for the recession-push hypothesis. Specifically, the authors find that an increase in the UR Granger causes an increase in the SER. Research limitations/implications - Due to data availability, a more detailed analysis of self-employment by industry was prohibitive. Practical implications - The results emphasize the importance of recognizing business cycle dynamics and the availability of credit when evaluating the causal relationship between entrepreneurship and unemployment. Social implications - As policy makers view entrepreneurship as a potential remedy for unemployment, particular attention needs to be given to both the phases of the business cycle and credit availability to support entrepreneurial ventures in the design of policy. Originality/value - Previous studies on the causal dynamics between entrepreneurship and unemployment pertain to OECD countries. This is the first study to examine a transition economy recently admitted to the European Union.