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Quality adjusted financial development and the Entrepreneurship-Growth Nexus

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  • Hazwan Haini
  • Ly Slesman

Abstract

The relationship between new business formation and economic growth can be supported by financial development. However, we argue that not all finance can spur entrepreneurial activity and that the quality of finance matters. Using data from 78 economies from 2006 to 2020, we estimate a dynamic growth model that accounts for potential endogeneity and simultaneity issues and an interaction term that captures the dynamic effects between entrepreneurial creation and quality-adjusted financial measures. We find some evidence that quality-adjusted measures of private credit that accounts for volatility and liquidity can moderate the relationship between entrepreneurship and economic growth. However, we also find that higher levels of quality-adjusted finance can crowd out the growth effects of new business formation, in line with the ‘too much finance’ view. Policy implications are discussed.

Suggested Citation

  • Hazwan Haini & Ly Slesman, 2025. "Quality adjusted financial development and the Entrepreneurship-Growth Nexus," Applied Economics Letters, Taylor & Francis Journals, vol. 32(13), pages 1951-1955, July.
    • Handle: RePEc:taf:apeclt:v:32:y:2025:i:13:p:1951-1955
    DOI: 10.1080/13504851.2024.2331674
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