Estimating the Contribution of Entrepreneurship to Economic Growth: Implications for Government Policies and Public Finance

The main justification for significant public policy resources spent to promote entrepreneurship, and the motivation for many academic studies, is the significant contribution entrepreneurship makes to economic growth. We revisit the most widely-cited claim that entrepreneurship explains one-third to one-half of economic growth. Using more sophisticated techniques and a significantly larger data sample we analyze eight entrepreneurship measures across four growth horizons. Our estimates place the answer nearer one-quarter to one-third. Specifically, unconditional regressions show startup and high-growth measures explain 20 to 31% of growth. Conditioning on standard growth factors and allocating shared variance, the estimates fall to between 22 and 27%. Dominance analysis indicates entrepreneurship accounts for 58 to 78% of all explained growth variation and ranks as the most important predictor at every horizon. Roughly a third of this explanatory power operates through human capital and a sixth through economic freedom, while capital and investment make little contribution.