Discussion Papers on Entrepreneurship, Growth and Public Policy

Nascent entrepreneurship, economic development

Abstract

Based upon two strands of literature, this paper hypothesizes a U-shaped relationshipbetween a country's rate of entrepreneurial dynamics and its level of economic developmentThis would imply a different scope for entrepreneurship policy across subsequent stages ofdevelopment. Regressing GEM's 2002 data for nascent entrepreneurship in 36 countries onthe level of economic development as measured either by per capita income or by an indexfor innovative capacity, we find support for a U-shaped relationship. Testing our resultsa gainst several control variables, evidence is again found for this relationship with economicdevelopment, in addition to significant effects of the business ownership rate (+), socialsecurity expenditure (-), aggregate taxes (+) and population growth (+). The results suggestthat a 'natural rate"of nascent entrepreneurship is to some extent govemed by "laws’ relatedto the level of economic development. For the most advanced nations, improving incentivestructures for business start-ups and promoting the commercial exploitation of scientificfindings offer the most promising approach for public policy. Developing nations, improving incentivestructures for business start-ups and promoting the commercial exploitation of scientificfindings offer the most promising approach for public policy. Developing nations, however,may be better off pursuing the exploitation of scale economies, fostering foreign directinvestment and promoting management education.