The Effect of Entrepreneurship Development on Economic Performance: An Asean Empirical Analysis

Entrepreneurship plays an important role in an economy in association with the new firm formation as one of the main indicators of economic growth. Major focus of the study was to evaluate how entrepreneurship development affect economic growth in ASEAN countries while determining its effect from government expenditures, capital-labor ratio, education and household expenditures as control variables for the period 1995 to 2018. The study mainly hypothesized that entrepreneurship development positively contributes largely to ASEAN economic growth. Also, the study hypothesized that the impact of entrepreneurship varies across high-income, upper middle-income and lower middle-income ASEAN countries. Two-Stage Least Squares (2SLS) using Random Effects (RE) and Ordinary Least Squares (OLS) estimation were used for the analysis and to solve the endogeneity problem between entrepreneurship and economic development. The instrumental variables used were time required to start a business and domestic credit to private sector. Results revealed that entrepreneurial activity has a significant positive effect on ASEAN economic performance. Analysis results between high-income, upper middle-income and lower middle-income level ASEAN countries indicate that the impact of entrepreneurship towards economic performance differs. Upper middle-income level ASEAN countries’ entrepreneurship has a highly positive significant impact in increasing economic growth. However, higher-income and lower middle-income ASEAN countries have positive and negative non-significant effects on the economy, respectively