Entrepreneurship, Innovation & Economic Growth: an Empirical Study of Developed & Developing Countries

Abstract

The purpose of this paper is to examine the relationship between entrepreneurship, innovation and economic growth. I use real GDP per capita, R&D investment per capita and new business density to measure growth, innovation and entrepreneurship respectively. The data consists of 125 countries including developed and developing countries for the period 2006 – 2016. Based on the work of Mankiw et al. (1992), I use a specification of the Cobb-Douglas production function to test the effect of entrepreneurship and innovation on growth of both groups of countries. I employ two estimation methods which are Static Panel Data Method and Generalized Method of Moments (GMM) to carry out the work. My results suggest that in short-term, the impact of innovation and entrepreneurship on growth is not significant or even have negative significance in developing countries. But the losses in short-term will be compensated in long-term since they show a positive and significant correlation in both groups of countries. The results also confirm the theory of spillage and the study of Mankiw et al. (1992).