The role of social capital on entrepreneurial effects on economic growth in developing countries: an empirical analysis

Abstract

The economic development of countries is closely linked to the dynamism and networks of the entrepreneur. Most of the work on this topic has not sufficiently emphasized the role of social capital in enhancing the effects of entrepreneurship on growth. This study attempts to address this shortcoming by estimating two regression models using the dynamic panel data technique to analyze the impact of social capital on entrepreneurial effects on economic growth in 26 developing countries over the period 2007-2020. The results of the first model indicate that the entrepreneur has a positive direct effect on economic growth and indirectly through trade openness, financial development, and control of corruption. At the same time, social capital, through its components, affects growth. In the second model, social capital directly affects the entrepreneur and contributes significantly to enhancing the effect of the entrepreneur on long-term economic growth. Indeed, this study attempts to provide an answer to certain economic policy issues. Our results suggest that entrepreneurship improves long-term growth in developing countries. In this process, the development of entrepreneurial actions and economic growth differentials between countries are justified by the level of availability of earning opportunities and the density of social capital. Policymakers should create a regulatory and socio-cultural environment that is more conducive to entrepreneurial development. In addition, they should encourage informal entrepreneurs to formalize in order to better organize them and strengthen their capacity to build networks that can improve their competitiveness.