An Empirical Evidence on Entrepreneurship and Economic Growth in India

Abstract

This research paper examines the empirical correlation and causality between economic growth as dependent and entrepreneurship as independent variables. To investigate such correlation and causality, gross domestic product at factor cost is used to examine growth and patents applications (PAT) and self-employment (SELF) are used as proxies for entrepreneurship. The initial TSLS (Two-stage Least Square) results showing correlation and causality between growth and entrepreneurship through PAT and SELF are not very robust and statistically significant. Not withstanding, the TSLS results showing a correlation and causality between PAT on the LHS and a few instrumental variables on the RHS of the second equation have shown a more meaningful and robust results. Further, predictors and residuals as independent variables on PAT and SELF and growth as a dependent variable have meaningfully confirmed the earlier TSLS results showing a significant correlation between PAT and SELF as dependent variables and IVs as independent variables in the RHS of the equation. More robust and significant causality is found when the square of predictors of IVs along with the predictors of PAT and SELF are regressed on economic growth.

Keywords: Two-Stage Least Square, Patents, Selfemployment, Economic Growth, Predictors, Residuals

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