The Effect of Entrepreneurship on Economic Growth: A Panel Approach in MENA Countries

This study examines the effect of entrepreneurial activity on economic growth in MENA countries. Following the endogenous growth model, we included human capital and technology spillover variables into the analysis. Due to limited data of entrepreneurship measures in MENA countries this study employed self-employment rate as a proxy. As the level of education increases, absorptive capacity and innovation capacity of the entrepreneurs’ increase. In order to adjust for human capital, the interaction variable of self-employment and average years of schooling are used. The fixed- effect panel regression estimates that the effect of self-employment on economic growth is negative in all specifications. However, the interaction estimate of self-employment and average years of schooling are positive and significant. Our results suggest that the driving force of entrepreneurship in MENA countries is also affected by the economic necessities. On the other hand, the level of education accelerates the effect of entrepreneurial activity on economic growth.