Can Entrepreneurial Initiative Blunt the Economic Inequality–Growth Curse? Evidence From 92 Countries

Abstract

Despite the growing interest in understanding the effects of income inequality on economic growth, the influence of entrepreneurship-related institutional constraints on the inequality–growth association remains less understood. Drawing on an institutional constraints perspective in the context of startup entry regulation and credit constraints, we propose that under increasing income inequality, ease of startup or access to credit from the financial sector is positively associated with per capita economic growth. In a sample of 92 countries, robust to alternate specifications, we find support for our hypotheses. Our findings contribute to the debates about the income inequality–growth nexus and imply potential policy interventions in the form of lower startup regulations and domestic credit provision from the financial sector to enhance economic growth under increasing economic inequality.

Inequality and Entrepreneurial Agency: How Social Class Origins Affect Entrepreneurial Self-Efficacy

“…Prior studies on the macro-level produce mixed results about whether entrepreneurship is a solution or a problem for increasing economic inequality (Atems & Shand, 2018; Bruton et al, 2021; Lewellyn, 2018; Packard & Bylund, 2018; Patel et al, 2021). By showing that individuals might turn structural disadvantages into advantages for entrepreneurship, we emphasize the socio-cognitive interplay between agency and structure.…”

“…While research on social class origins gains steam in management research, entrepreneurship research has largely remained silent on how being born into rich or poor families impacts entrepreneurial cognition and social mobility via entrepreneurship. Prior research on entrepreneurship and inequality on the macro-level discusses the role of institutions and economic growth (Patel et al, 2021), the effect of inequality on social entrepreneurship activity (Pathak & Muralidharan, 2018), and the consequences of entrepreneurial activity on inequality (Lewellyn, 2018; Packard & Bylund, 2018). Most studies that consider individuals’ socioeconomic conditions investigate their influence on the likelihood of entrepreneurial career entry (Audretsch et al, 2013; Schoon & Duckworth, 2012; Xavier-Oliveira et al, 2015), whereas less is known about the association of being born into different social class backgrounds with entrepreneurial cognition (for a recent exception, see Ge et al, 2022).…”

“…Most prior literature on entrepreneurship and inequality takes an economic stance (Atems & Shand, 2018; Bruton et al, 2021; Lewellyn, 2018; Packard & Bylund, 2018; Patel et al, 2021; Pathak & Muralidharan, 2018) examining the effects of entrepreneurial activity on the level of economic inequality in a society. Other research investigates economic inequality’s consequences on entrepreneurial entry from a labor market stance (Frid et al, 2016; Perry-Rivers, 2016; Schoon & Duckworth, 2012; Xavier-Oliveira et al, 2015).…”

The Role of Entrepreneurship in Economic Inequality

“…For instance, Patal investigated the relationship between entrepreneurial initiatives and income inequality with evidence from 92 countries. Their findings proved that, in developing countries, loosening the regulation control over startups is positively related with per capita economic growth and reduced income inequality [11]. Another mechanism of how entrepreneurship eases economic imbalances is through the agglomeration of human capital and the reallocation of available resources.…”

Economic regulation, opportunity-driven entrepreneurship and gender gap: emerging versus high-income economies

“…A solid and efficient financial system guarantees the availability of essential services for innovative entrepreneurs, such as access to credit and the ability to deposit savings. Therefore, effective financial market regulation enables a high performing exchange of opportunities between investors, businesses and households (Patel et al , 2018), augmenting transparency and decreasing the costs derived from the search for funding. Arguments for financial freedom advocate limiting public intervention, such that interest rates and prices could be generated in the credit market through the logical process of supply and demand of financial assets, which is expected to favour the environment for opportunity-driven entrepreneurs to carry out their activity.…”