Economic Complexity and Entrepreneurship Density:A Non-Linear Effect Study

Abstract

This study examines the link between economic complexity and entrepreneurship density. Testing 53 economies over the period 2006-2016, we find a significant Granger causality from economic complexity to entrepreneurship density, but reverse causality is not supported. Also, we suggest that entrepreneurship density is an inverted-U shaped function of economic complexity. That is, an increase in economic complexity initially facilitates entrepreneurship density as more business opportunities are created. However, beyond a specific threshold, an increase in economic complexity induces higher risks and uncertainties, discouraging entrepreneurial activities. The results remain robust by different estimators and in sub-samples of High-Income Economies and Low-and-Middle-Income Economies.