Entrepreneurship and Economic Growth: The Moderating Role of Governance Quality

Abstract

The role of institutional quality is important for the development of entrepreneurship and economic growth. With this question in mind, it is crucial to understand why some countries have higher economic growth and more entrepreneurial activity than others, and what factors determine the relationship between entrepreneurship and growth. Hence, the aim of this research is to identify the moderating effect of governance quality in terms of 6 sub-indices, including voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption based on a sample of 54 countries participating in the Global Entrepreneurship Monitor (GEM) project during 2008–2020. The results show that the quality of governance increases the positive relationship between entrepreneurial activity and economic growth. In particular, all sub-indicators of governance quality seem to be moderators between entrepreneurship and economic growth. This study has implications both from a theoretical point of view (promoting the application of institutional economics in entrepreneurship–growth nexus) and from a practical point of view (providing insight into policies that improve the governance quality) promoting entrepreneurial activity and economic growth.