Entrepreneurship, Innovation and Economic Growth: Evidence from GEM Data

Studies on the impact of technological innovation on growth have been largely mute on the role of new firm formation. Using cross-sectional data on the 37 countries participating in GEM 2002, this paper uses an augmented Cobb-Douglas production to explore firm formation and technological innovation as separate determinants of growth. One area of interest is the contrast between different types of entrepreneurial activities as measured using GEM Total Entrepreneurial Activity (TEA) rates - high growth potential TEA, necessity TEA, opportunity TEA and overall TEA. Of the four types of entrepreneurship, only high growth potential entrepreneurship is found to have a significant impact on economic growth. This finding is consistent with extant findings in the literature that it is fast growing new firms, not new firms in general, that accounted for most of the new job creation by small and medium enterprises in advanced countries.