Productivity and growth : the relevance of the national system of entrepreneurship

In this study we evaluate how country-level entrepreneurship—measured via the national system of entrepreneurship—impacts total factor productivity, and how the national system of entrepreneurship triggers productivity by increasing the beneficial effects of different types of entrepreneurship, namely Kirznerian and Schumpeterian entrepreneurship. Using a comprehensive database for 73 countries during 2002-2013, we employ a non-parametric technique—Data Envelopment Analysis—to build the world technology frontier and compute the Malmquist total factor productivity index and its components. The results are consistent with the notion that the national system of entrepreneurship is positively associated with total factor productivity at the country level. Additionally, the findings reveal that the national system of entrepreneurship enhances efficiency change via enhanced Kirznerian entrepreneurship in the short-run, while the positive effect on total factor productivity of Schumpeterian entrepreneurship prevails in the long run. The results suggest that public policies promoting Kirznerian entrepreneurship—e.g., increased business formation rates—may be conducive to productivity in periods of economic growth. In contrast, policy interventions targeting Schumpeterian entrepreneurship objectives—e.g., innovative entrepreneurship and the development of new technologies—yield to technical progress and, consequently, productivity growth, regardless of the state of the economic cycle (growth of stagnation).