Is entrepreneurship a leading or lagging indicator of the business cycle? Evidence from UK self-employment data

Previous studies provide suggestive evidence that entrepreneurship varies with the state of the business cycle. This article extends the knowledge base by exploring whether the rate of self-employment – a widely used measure of entrepreneurship – is a lagging or leading indicator of the business cycle. The study, which utilizes time series UK data on aggregate output, unemployment and self-employment rates, is robust to structural breaks in the cyclical relationships between these variables. The study finds evidence of significant bi-directional causality: that is, entrepreneurship both causes and is caused by business cycles. The covariance of entrepreneurship is positive with respect to output and negative with respect to unemployment.