The financial puzzle of entrepreneurship: Credit constraints and the role of government policies

Entrepreneurship is a critical engine of economic growth, yet financial constraints continue to thwart the ambitions of aspiring entrepreneurs. This study investigates the impact of credit constraints on entrepreneurial activities across a diverse set of countries, utilising data from the Global Entrepreneurship Monitor (GEM), the World Bank's Doing Business database, and World Development Indicators. We aim to explore how government support can mitigate these constraints and promote entrepreneurship. Our findings reveal a positive relationship between financial availability and Total Early-Stage Entrepreneurial Activity (TEA) and Established Business Ownership (EBO), consistent with previous research. Moreover, we identify a significant moderating role of government support in enhancing early-stage entrepreneurial activities, though its effect on established businesses is less pronounced. Additionally, our analysis uncovers a non-linear, inverted U-shaped relationship between credit depth and entrepreneurial outcomes, suggesting that insufficient and excessive credit access can hinder business development. These results underscore the need for balanced financial policies and targeted government interventions to foster a vibrant entrepreneurial ecosystem, particularly in regions with underdeveloped financial markets.