Conventionally,neoclassical theories regarded capital, labor and technology as leading factorsthat stimulate economic growth. A renewed thinking from new growth models alsoemphasize the important role of entrepreneurship to the mantra of economicgrowth. From business literature standpoint Schumpeter (1934), Acs andAudretsch (1988) and Wennekers and Thurik (1999) as well, highlightentrepreneurship as a driver of innovation and ultimately economic growth.
As aresult of its pertinence to the economic through employment creation andsupplying new technology, entrepreneurship is increasingly gaining coverage in academicand policy making circles (Carree and Thurik (2003), Van Stel, Carree andThurik (2004 and 2005), Acs and Varga (2005), Wong, Ho and Autio (2005), Acs(2006), Méndez-Picazo, Galindo-Martín and Ribeiro-Soriano (2012), Palagashvili(2015) and Herrington and Kew (2017)). According to Kressel and Lento (2012),entrepreneurship is regarded as both an engine and catalyst to economic growth.However, Ahmad and Hoffmann (2008) argue that the pursuit to adopt economicpolicies that rest on entrepreneurship as a tool to spur economic growthcontinue to be hampered by inadequate empirical information.Literature relatinginstitutional quality, entrepreneurship and economic growth mainly address theindirect link of institution and economic growth through entrepreneurship (Acs,Desai and Hessels (2008), Méndez-Picazo, Galindo-Martín and Ribeiro-Soriano(2012) and Palagashvili (2015)). Studies devoted to the joint impact ofentrepreneurship and institutional quality on economic growth are not only lessdocumented empirically but theoretically as well (Wennekers and Thurik (1999)).Likewise, Kiliç, Arica and Topkaya (2013) analyze the connection ofthese three variables in a single equation.
Also some studies fail to account for reverse causalityof entrepreneurship and economic growth or institutional quality and economicgrowth (Acs, Desai and Klapper (2008)).As such, the aim of this paperis to close the literature gap by analyzing the individual impact ofentrepreneurship as well as its separate combined effect with institutionalquality and technology exports on economic performance. Hypotheses of thispaper are as follows; high entrepreneurial activities denoted by totalentrepreneurial activities (TEA) lead to high economic growth. Secondly, engagingin entrepreneurial activities in an environment with better institutions and inhigh technology exports stimulates economic growth.
Acs, Desai and Hessels(2008) and Palagashvili (2015) further highlight that entrepreneurship’scontribution to economic growth can be successful if it is supported by goodinfrastructure, political stability and good governance. Through setting ofrules of the game, institutions do not only legitimize entrepreneurialactivities but also protecting entrepreneurs against expropriation of theirhard earned investments (Troilo (2011: 160)). A stable political environment,predictable rule of law and respect of private property rights are fundamentalin incentivizing entrepreneurs to be risk takers in starting and expandingtheir investments (Desai, Gompers and Lerner (2003), Estrin, Korosteleva andMickiewicz (2009), Friedman (2011) and Aidis, Estrin and Mickiewicz (2012)). Theabove factors do not only provide a minimum assurance to entrepreneurs but alsoprovide confidence and trust to them. Troilo (2011) also bemoan that too muchregulations and well-established laws can end up hindering entrepreneurial engagements.As a result Kiliç, Arica and Topkaya (2013) suggest that policy makers should craveto create a barrier free business environment for entrepreneurs so that highlevels of economic growth can be attained.An increase ineconomic growth (income level) may open avenues for individuals to engage inentrepreneurial activities since they have enough resources to exploitentrepreneurial opportunities resulting in more jobs created (Acs (2006) andAcs, Desai and Klapper (2008)).
In contrast, a decrease in economic growth,such as in times of crisis especially for developing countries, may meanlimited employment opportunities created forcing individuals to undertakeentrepreneurial activities (small and medium enterprising). Due to economiccrisis, individuals are bound to be innovative and venture into entrepreneurialactivities. This is a common feature in developing countries where small scaleentrepreneurs are rampant. As people find employment, entrepreneurshipparticipation rate start to decrease. In this case Carree and Thurik ((2003)and (2010)) highlighted that unemployment necessitates the need for individualsto engage in entrepreneurial activities, a “refugeeeffect” concept. Alternatively, according to Acs (2006), Carree and Thurik((2003) and (2010)) and Bosma (2013), high entrepreneurial activities createnew businesses which in turn create employment leading to high economic growthrates, and this is termed the “Schumpetereffect”.