Entrepreneurship and Income Inequality: A Dynamic Spatial Panel Data Analysis

Abstract

This paper extends the empirical debate of Ragoubi and El Harbi (2018) on the dynamic relationship between entrepreneurship and income inequality. Using a dynamic spatial panel data analysis for both 33 high-income countries and 39 middle-income and low-income countries over the period 2004–2014, the main empirical findings are summarised as follows. First, the results indicate that entrepreneurship is a spatial and persistent phenomenon. Second, there is strong support for the existence of an inverted U-shaped relationship between entrepreneurship and income inequality espoused by the Kuznets Curve hypothesis for middle-income and low-income countries. Third, the interaction between income inequality and income per capita has a significant negative effect on the entrepreneurial activity for middle-income and low-income countries. Fourth, a significant positive association is found between the interaction variable and entrepreneurship for high-income countries. Fifth, the findings show evidence of significant positive and negative short-run direct effects of income inequality on the entrepreneurial activity for middle-income and low-income countries. Finally, there are significant negative short-run spillover effects of income inequality on the entrepreneurial activity for middle-income and low-income countries.

The Role of Entrepreneurship in Economic Inequality

“…Another advantage of quantitative analysis is to allow a deeper insight into the interactions between these two variables that are beyond qualitative observations. The analysis was based on the conceptual framework proposed by Miguel, who measured the introduced indicators using the structural equation model when the sample size is relatively small [14]. This paper also continued to use the same indicators to quantify both entrepreneurship and economic inequality concerning authority literature in this domain.…”