The two-way relationship between entrepreneurship and economic performance

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The two-way relationship between entrepreneurship and economic performance

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Chantal Hartog

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Chantal M. Hartog

Abstract

This paper examines the two-way relationship between entrepreneurship and economic performance, using a harmonized dataset covering 23 OECD countries in the period 1972-2006. We investigate the relationship in an integrated framework, accounting for the direction of causality, the lag structure, the short-run dynamics and the long-run equilibrium relation. More specifically, we estimate a Vector Error Correction Model (VECM) without imposing prior assumptions on the endogeneity of entrepreneurship and economic performance. Next to these variables, we also include several exogenous explanatory variables in the model. The VECM with cointegration allows us to unravel the genuine relationship between entrepreneurship and economic performance. We find that entrepreneurship (as measured by business ownership) causes economic performance and economic performance causes entrepreneurship, supporting the existence of a two-way relationship. Both these causal effects are found to be positive.

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Paper provided by EIM Business and Policy Research in its series Scales Research Reports with number H200822.

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Length: 78 pages
Date of creation: 09 Dec 2008
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Handle: RePEc:eim:papers:h200822

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This paper has been announced in the following NEP Reports:

NEP-ALL-2008-12-14 (All new papers)
NEP-ENT-2008-12-14 (Entrepreneurship)

References listed on IDEAS
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Other versions:
- Roy Thurik & Andreas Freytag, 2006. "Entrepreneurship and its determinants in a cross-country setting," Scales Research Reports H200616, EIM Business and Policy Research. [Downloadable!]
MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct. [Downloadable!]
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Other versions:
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Other versions:
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Other versions:
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- David B. Audretsch & Roy Thurik & Andre van Stel & M.A. Carree, 2006. "Does Self-Employment Reduce Unemployment?," Papers on Entrepreneurship, Growth and Public Policy 2005-07, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group. [Downloadable!]
Audretsch, David B & Keilbach, Max, 2005. "Entrepreneurship Capital - Determinants and Impact," CEPR Discussion Papers 4905, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- David B. Audretsch & Max Keilbach, 2004. "Entrepreneurship Capital: Determinants and Impact," Papers on Entrepreneurship, Growth and Public Policy 2004-37, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group. [Downloadable!]
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Other versions:
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