Economic complexity and entrepreneurship density: A non-linear effect study

• Published in: Technological forecasting & social change 2021-12, Vol.173, p.121107, Article 121107
• Main Authors: Nguyen, Canh Phuc, Nguyen, Bach, Duy Tung, Bui, Dinh Su, Thanh
• Format: Article
• Language: English
• Subjects: Causality; Complexity; Density; Economic complexity; Economics; Entrepreneurs; Entrepreneurship; Income; Low income groups; Non-linear; Panel data; Structural changes
• ISSN: 0040-1625; 1873-5509
• DOI: 10.1016/j.techfore.2021.121107

•This study examines the link between economic complexity and entrepreneurial activities in a sample of 53 economies.•There is a significant uni-direction Granger causality from economic complexity to entrepreneurship density.•Entrepreneurship density is an inverted-U shaped function of economic complexity.•The results are checked by different estimators and in two sub-samples for robustness. This study examines the link between economic complexity and entrepreneurship density. Testing 53 economies over the period 2006-2016, we find a significant Granger causality from economic complexity to entrepreneurship density, but reverse causality is not supported. Also, we suggest that entrepreneurship density is an inverted-U shaped function of economic complexity. That is, an increase in economic complexity initially facilitates entrepreneurship density as more business opportunities are created. However, beyond a specific threshold, an increase in economic complexity induces higher risks and uncertainties, discouraging entrepreneurial activities. The results remain robust by different estimators and in sub-samples of High-Income Economies and Low-and-Middle-Income Economies.