Institutions, Entrepreneurship, and Economic Development

Does entrepreneurship always lead to economic development? Using an institutional approach, we examine entrepreneurship’s contribution towards economic development for low, middle, and high-income countries. Using Global Entrepreneurship Monitor data for a panel of 99 countries from 2002 to 2018, we uncover several important findings. We find that entrepreneurship encourages economic development but not in low-income countries. We also find that the type of entrepreneurship matters: opportunity-motivated entrepreneurship encourages economic development in high- and middle-income countries, while necessity-motivated entrepreneurship discourages economic development especially in low- and middle-income countries. Lastly, we find that a country’s institutional environment has a stronger effect on economic development in middle income countries than in high-income or low-income countries. These findings have important policy implications. Namely, our evidence counters policy proposals that contend entrepreneurship will encourage economic development in low-income countries. Our evidence suggests these policy proposals are unlikely to generate the results desired.