We evaluate how country-level entrepreneurship—measured via the national system of entrepreneurship—triggers total factor productivity (TFP) by increasing the effects of Kirznerian and Schumpeterian entrepreneurship. Using a database for 45 developed and developing countries during 2002–2013, we employ non-parametric techniques to build a world technology frontier and compute TFP estimates. The results of the common factor models reveal that the national system of entrepreneurship is a relevant conduit of TFP, and that this effect is heterogeneous across countries. Policies supporting Kirznerian entrepreneurship—e.g., increased business formation rates—may promote the creation of low value-adding businesses which is not associated with higher TFP rates. Policy interventions targeting Schumpeterian entrepreneurship objectives—e.g., innovative entrepreneurship and the development of new technologies—are conducive to technical change by promoting upward shifts in the countries’ production function and, consequently, productivity growth.
- c23 - "Single Equation Models; Single Variables: Models with Panel Data; Longitudinal Data; Spatial Time Series"
- e23 - Macroeconomics: Production
- l26 - Entrepreneurship
- m13 - "New Firms; Startups"
- o10 - Economic Development: General
- Enterprise Policy
- Industrialization; Manufacturing and Service Industries; Choice of Technology
- Macroeconomics: Production
- New Firms; Startups
- HETEROGENEOUS PANELS
- Common factor model
- Total factor productivity
- National system of entrepreneurship
- Technical change
- INDEX NUMBERS
- Parameter heterogeneity