Entrepreneurship and aggregate productivity

Abstract

This paper examines the contribution of entrepreneurial activity to aggregate productivity in eleven post-socialist new European Union member states over the period 2005-2019. Building on Baumol's distinction between productive and unproductive entrepreneurship, it addresses two questions: whether measures of entrepreneurial activity are correlated with aggregate productivity, and whether that correlation is positive or negative, thereby allowing productive and unproductive entrepreneurship to be distinguished empirically. Productivity is measured by GDP per person employed and GDP per hour worked, entrepreneurial activity by the Global Entrepreneurship Monitor's National Entrepreneurship Context Index, and the institutional environment by the burden of government regulation. Estimating a linear dynamic panel with a one-step generalized method of moments estimator, the analysis finds that the entrepreneurial environment is positively and significantly associated with both productivity measures, while a heavier regulatory burden is negatively associated with them. These results identify the prevailing entrepreneurship in the sample as productive in Baumol's sense. The contribution is twofold: conceptually, the paper offers a theory-to-measurement bridge for the Baumolian framework, and empirically, it documents the entrepreneurship-productivity nexus for a panel of new EU member states.