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When development finance spurs entrepreneurship: New evidence from 5 million projects using a machine learning classifier

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  • Werner, Sven
  • Trotter, Philipp

Abstract

Development finance increasingly funds entrepreneurship in developing countries, but evidence of its impact on entrepreneurship is mixed. Existing studies analyze total development finance flows as entrepreneurship-specific development finance data did not previously exist. By training and validating a machine-learning classifier on development finance project descriptions (2000-2022; 5 million projects; 97% accuracy), we introduce a scalable, replicable measure of specific entrepreneurship-support development finance (ESDF). Crucially, this measure allows us to assess which entrepreneurship margins respond to development finance. In a 19-year panel of 50 developing countries, two-way fixed-effects regressions show that higher ESDF is associated with higher entrepreneurial intentions, while total development finance is not. ESDF is not significantly linked to early-stage entrepreneurial activity, however, suggesting conversion bottlenecks in current entrepreneurial processes.

Suggested Citation

  • Werner, Sven & Trotter, Philipp, 2026. "When development finance spurs entrepreneurship: New evidence from 5 million projects using a machine learning classifier," Ruhr Economic Papers 1205, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:341094
    DOI: 10.4419/96973390
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    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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