Economic Freedom, Entrepreneurship and Economic Growth: Evidence From Panel Data

The existing literature is filled with mixed findings on the effect of entrepreneurship on economic growth. In particular, previous literature treats the effect of entrepreneurship on economic growth in isolation, while we emphasize the institutional environment, and especially, economic freedom. Using data from the Global Entrepreneurship Monitor, we re-explore the relationship between entrepreneurship and growth and attempt to clarify the mixed findings. The systemic link between economic freedom, entrepreneurship and economic growth is investigated by examining a panel of 54 countries (2008-2018). The results validate that overall economic freedom and its subcomponents, such as the rule of law, limited government size, regulatory efficiency and market openness promote the positive effects of entrepreneurial activity on economic growth. The results suggest that economic freedom not only directs individual efforts to entrepreneurial activity, but also affects the extent to which entrepreneurial activity encourages higher growth rates. The findings contradict policy recommendations that some measures of economic freedom are not significantly associated with entrepreneurship.