Self-employment and economic growth in developing countries: is more self-employment better?

Purpose - The study aims to examine the non-linear relationship between self-employment and economic growth (growth) in the context of developing countries. Design/methodology/approach - Data from a sample of 83 developing countries covering a period 2002–2015 is used. The empirical analysis is based on the dynamic panel data estimation, and the results are estimated using the two-step system GMM technique. Non-linearity between self-employment and growth is validated using Sasabuchi (1980) and Lind and Mehlum (2010) (SLM) test. Findings - The empirical analysis suggests a non-linear and aU-shaped relationship between self-employment and growth, confirmed by the SLM test. The threshold levels for total self-employment, female self-employment and male self-employment are 57.49%, 58.86 and 55.81%. The findings are also robust to alternate estimation technique and alternate measure of the dependent variable. Practical implications - Policy implications of the findings include the need for policies that foster and channel self-employment properly as the higher level of self-employment is found to benefit growth. Originality/value - This study is the first attempt to examine the empirical relationship between self-employment and growth. As such, it makes a novel contribution to the extant literature on the relationship between the two variables.