IDEAS home Printed from
   My bibliography  Save this paper

The two-way relationship between entrepreneurship and economic performance


  • André van Stel
  • Roy Thurik
  • Chantal Hartog
  • Simon Parker


This paper examines the two-way relationship between entrepreneurship and economic performance, using a harmonized data set covering 21 OECD countries in the period 1981-2006. While the relation between entrepreneurship and economic performance has been investigated extensively, most papers in this research field suffer from one or more methodological flaws, so that the important question: "does entrepreneurship cause economic performance?" can still not be answered up till the present day. In this paper we investigate the relationship in a Vector Error Correction Model (VECM) framework. We find evidence for the existence of a long-run equilibrium relation between the level of business ownership and per capita income. We also find evidence that increases in business ownership actually cause economic growth. However, our impulse response analysis reveals that the effect depends on the number of business owners already present in the economy, i.e. we find decreasing marginal returns to entrepreneurship. We also find that the effect depends on the size of the shock (i.e. the increase in entrepreneurship), where too big shocks may lead to negative effects on GDP due to 'overshooting'.

Suggested Citation

  • André van Stel & Roy Thurik & Chantal Hartog & Simon Parker, 2010. "The two-way relationship between entrepreneurship and economic performance," Scales Research Reports H200822, EIM Business and Policy Research.
  • Handle: RePEc:eim:papers:h200822

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Andreas Freytag & Roy Thurik, 2007. "Entrepreneurship and its determinants in a cross-country setting," Journal of Evolutionary Economics, Springer, vol. 17(2), pages 117-131, April.
    2. 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 563-577, Sept.-Oct.
    3. Thurik, A. Roy & Carree, Martin A. & van Stel, André & Audretsch, David B., 2008. "Does self-employment reduce unemployment?," Journal of Business Venturing, Elsevier, vol. 23(6), pages 673-686, November.
    4. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    5. Zoltan J. Acs & David B. Audretsch & Pontus Braunerhjelm & Bo Carlsson, 2005. "Growth and Entrepreneurship: An Empirial Assessment," Papers on Entrepreneurship, Growth and Public Policy 2005-32, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    6. Johansen, S ren, 2000. "A Bartlett Correction Factor For Tests On The Cointegrating Relations," Econometric Theory, Cambridge University Press, vol. 16(05), pages 740-778, October.
    7. 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.
    8. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    9. Andre van Stel, "undated". "COMPENDIA: Harmonizing business ownership data across countries and over time," Papers on Entrepreneurship, Growth and Public Policy 2005-05, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    10. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    11. André Stel & Kashifa Suddle, 2008. "The impact of new firm formation on regional development in the Netherlands," Small Business Economics, Springer, vol. 30(1), pages 31-47, January.
    12. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-670, Special I.
    13. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    14. Hugo Erken & Piet Donselaar & Roy Thurik, 0000. "Total Factor Productivity and the Role of Entrepreneurship," Tinbergen Institute Discussion Papers 09-034/3, Tinbergen Institute.
    15. Michael Fritsch, 2008. "How does new business formation affect regional development? Introduction to the special issue," Small Business Economics, Springer, vol. 30(1), pages 1-14, January.
    16. Michael Fritsch & Pamela Mueller, 2004. "The Effects of New Business Formation on Regional Development over Time," Papers on Entrepreneurship, Growth and Public Policy 2004-36, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    17. Michael Fritsch & Pamela Mueller, 2004. "Effects of New Business Formation on Regional Development over Time," Regional Studies, Taylor & Francis Journals, vol. 38(8), pages 961-975.
    18. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    19. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    20. Philip Hans Franses, 2001. "How to deal with intercept and trend in practical cointegration analysis?," Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 577-579.
    Full references (including those not matched with items on IDEAS)


    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Scottish entrepreneurial buzz, or needs must?
      by Brian Ashcroft in Scottish Economy Watch on 2012-11-18 06:26:14


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Molina, Jose Alberto & Ortega, Raquel & Velilla, Jorge, 2017. "Older entrepreneurs-by-necessity using fuzzy set methods: differences between developed and developing countries," MPRA Paper 76982, University Library of Munich, Germany.
    2. Michael Fritsch & Florian Noseleit, 2013. "Indirect employment effects of new business formation across regions: The role of local market conditions," Papers in Regional Science, Wiley Blackwell, vol. 92(2), pages 361-382, June.
    3. Fritsch, Michael, 2013. "New Business Formation and Regional Development: A Survey and Assessment of the Evidence," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 9(3), pages 249-364, February.
    4. José Ernesto Amorós Espinosa & Luciano Ciravegna & Vesna Mandakovic & Pekka Stenmolm, 2017. "Necessity or opportunity? the effects of State fragility and economic development on entrepreneurial efforts," Serie Working Papers 42, Universidad del Desarrollo, School of Business and Economics.
    5. Michael Fritsch, 2011. "The effect of new business formation on regional development - Empirical evidence, interpretation, and avenues for further research," Jena Economic Research Papers 2011-006, Friedrich-Schiller-University Jena.
    6. Michael Fritsch, 2012. "Methods of analyzing the relationship between new business formation and regional development," Jena Economic Research Papers 2012-064, Friedrich-Schiller-University Jena.
    7. Heike Delfmann & Sierdjan Koster, 2014. "New firm formation and its effect on employment growth in declining regions," ERSA conference papers ersa14p1133, European Regional Science Association.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eim:papers:h200822. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster EIM). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.