Research Article • DOI: 10.

2478/tekhne-2019-0012 Tékhne • 17(1) • 2019 • 10-30

Tékhne – Review of Applied Management Studies

ENTREPRENEURSHIP AND INCOME INEQUALITY:

A DYNAMIC SPATIAL PANEL DATA ANALYSIS

Hanen Ragoubi*, Sana El Harbi

Research Laboratory for Economy, Management and Quantitative Finance (LaREMFiQ), University of Sousse, Tunisia

Received: 29 June 2019; Accepted: 28 October 2019

Abstract
This paper extends the empirical debate of Ragoubi and El Harbi (2018) on the dynamic relationship between entrepreneurship and
income inequality. Using a dynamic spatial panel data analysis for both 33 high-income countries and 39 middle-income and low-
income countries over the period 2004–2014, the main empirical findings are summarised as follows. First, the results indicate that
entrepreneurship is a spatial and persistent phenomenon. Second, there is strong support for the existence of an inverted U-shaped
relationship between entrepreneurship and income inequality espoused by the Kuznets Curve hypothesis for middle-income and
low-income countries. Third, the interaction between income inequality and income per capita has a significant negative effect on
the entrepreneurial activity for middle-income and low-income countries. Fourth, a significant positive association is found between
the interaction variable and entrepreneurship for high-income countries. Fifth, the findings show evidence of significant positive and
negative short-run direct effects of income inequality on the entrepreneurial activity for middle-income and low-income countries.
Finally, there are significant negative short-run spillover effects of income inequality on the entrepreneurial activity for middle-income
and low-income countries.

Keywords
Entrepreneurship • income inequality • dynamic spatial panel data • Kuznets hypothesis • spillover effect

1. Introduction 2011; Hamilton, 2000). Nevertheless, attention to the potential

The last few decades have witnessed a notable rise in
entrepreneurial activity in both developed and developing
countries. Besides, much public policy in this context has
been directed towards increasing the supply of entrepreneurs
(Blanchflower, 2000; Steinmetz & Wright, 1989). At the same
time, there has been a dramatic rise in income inequality
around the world (Atkinson, 2003; Autor, 2014; Goldthorpe,
2010; Jaumotte, Lall, & Papageorgiou, 2013) over the past
two decades. In addition, there have been increasing efforts
by national governments to enact policies that stimulate
and support entrepreneurial activity (Anokhin & Wincent,
2012). In the entrepreneurship literature, numerous studies
have documented a two-pronged effect of entrepreneurship
on individual income. They argue that entrepreneurship is
a source of enhanced income mobility for some but results
in lower-than-average income for the large fraction of the
self-employed workforce (Åstebro, Chen, & Thompson,
implications of these patterns for macro-level income distribution
has been scant in the entrepreneurship literature. In the income
inequality literature, new types of models have been developed
to decompose and problematise different sources of income
inequality (Cowell & Fiorio, 2011; Creedy & Hérault, 2011;
Halvarsson, Korpi, & Wennberg, 2018). However, these studies
have tended to overlook entrepreneurship as one of these
potential sources. As argued by Audretsch (2009), this oversight
is problematic since entrepreneurship is an increasingly
prevalent occupational choice in many economies.
Despite these two parallel economic trends, there is a lack of
theoretical insights regarding the causal relationships between
entrepreneurial activity and income inequality (Bapuji, 2015;
Lewellyn, 2018; Lippmann, Davis, & Aldrich, 2005; Packard
& Bylund, 2018; Van Praag & Versloot, 2007; Wright & Zahra,
2011). Based on the idea that the concentration of wealth in
the hands of a few can affect the competitive dynamics in the
industry, Lippmann et al. (2005) develop theoretical propositions
about this relationship and argue that inequality affects the

Corresponding author: Hanen Ragoubi

†

E-mail: hragoubi2205@gmail.com

Open Access. © 2019 Hanen Ragoubi et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 4.0 License.
10

nature of entrepreneurship in society. They claim that the rich
can engage in opportunity entrepreneurship, which is aimed
at building large corporations and generating returns from the
capital. On the other hand, they highlight that the poor have
fewer resources and engage in necessity entrepreneurship
aimed at sustenance and build small-scale and medium-
scale firms. Bapuji (2015) presents a theoretical framework
to study how economic inequality affects organisational
performance. In particular, he suggests that economic
inequality indirectly affects organisational performance via
human development in the society and directly via its effects
on individual employees and their workplace interactions,
as well as via the institutions in which the organisations are
embedded.
Turning to empirical studies that focus specifically on
the relationship between entrepreneurship and income
inequality, we note a thinner empirical literature that
highlights the association between inequality within
organisations and employees’ transition to entrepreneurship.
Instead of exploring potential relations to workforce income
dispersion per se, some of these studies have typically
focused on the conditions in which income dispersion
within firms may represent a source of upward earnings
mobility among individuals choosing to leave these firms for
entrepreneurship (Carnahan, Agarwal, & Campbell, 2012;
Kacperczyk & Balachandran, 2017; Sørensen & Sharkey,
2014). Nevertheless, a few macro-oriented studies have
highlighted that the greater the number of small firms in an
economy, the more unequal the earnings distribution in that
economy is (Cobb & Lin, 2017; Davis, 2013; Fields & Yoo,
2000). To explain this pattern, the literature has typically
provided very broad structural explanations. For instance,
Lippmann et al. (2005) provide cross-country evidence on
the possible link between the rate of entrepreneurship and
workforce income inequality using Global Entrepreneurship
Monitor (GEM) data. They argue that entrepreneurship rates
are higher in countries with significant income inequality
and discuss seven structural factors broadly associated
with this pattern: level of economic development, foreign
direct investment, government policies, increasing labour
market flexibility, wealth-transfer programmes, service sector
growth and variation in worker unionisation. As explained by
Lippmann et al. (2005), the logic for this perspective assumes
that segments of society with greater wealth will possess the
financial means to invest in entrepreneurial ventures, thus
increasing the rate of entrepreneurial activity driven by market
opportunities. Another argument advanced by Lippmann et al.
(2005) is that high-income inequality suggests that a greater
proportion of the population resides in the lower income
segment and therefore necessity entrepreneurial activity
becomes the most expedient way for low-income individuals
to support themselves.
H. Ragoubi et al.: Entrepreneurship and income inequality...
Some recent empirical studies have explored the extent
to which inequality influences entrepreneurial activity rates.
Xavier-Oliveira, Laplume, & Pathak, (2015) examine the
effect of resource endowments (financial and human capital)
on necessity and opportunity entrepreneurship and the
contingent effect of economic inequality. Using multicountry
data on income inequality and entrepreneurship, they show that
individuals with higher financial and human capital are more
likely to engage in opportunity entrepreneurship but less likely
to engage in necessity entrepreneurship. However, as income
inequality in a society increases, individuals with financial
and human capital are more likely to engage in necessity
entrepreneurship; financial and human capitals do not stop
them from being pushed into it. In contrast, only financial
capital facilitates entry into opportunity entrepreneurship
when income inequality is high. In other words, when
inequality is high, human and financial capitals do not matter
unless the levels of financial capital are extremely high. These
results suggest that economic inequality effectively creates
two social classes – extremely rich who can thrive under all
levels of inequality and the rest who can thrive only when
inequality is low. Furthermore, Pathak and Muralidharan
(2018) explore the extent to which income inequality and
income mobility facilitate or constrain the emergence of social
entrepreneurship. Using multilevel analysis, they demonstrate
that country-level income inequality increases the likelihood of
individual-level engagement in social entrepreneurship, while
income mobility decreases this likelihood. In addition, they
find that income mobility negatively moderates the influence
of income inequality on social entrepreneurship, such that the
condition of low-income mobility and high-income inequality is
a stronger predictor of social entrepreneurship.
Another empirical study advanced by Sarkar, Ru,
& Haughton, (2018) explores the relationship between
inequality and entrepreneurial activity. Using cross-sectional
data from a large-scale survey of the economic conditions of
individuals across India, they develop several dimensions of
inequality to explore empirically how inequality interacts with
entrepreneurship, operationalised as self-employment or as
employing other people. Their findings show that there are
thresholds to becoming self-employed, and even more so
to assembling the combinations of resources and personal
attributes required to become an employer. Moreover, they
find that greater inequality leaves more people unable to make
the transition to self-employment, leaving casual labouring as
the occupation of necessity. Furthermore, they demonstrate
that inequality increases the number of employers in society,
by concentrating resources – particularly land and finance –
enough for significant numbers of people to be able to cross
this higher threshold.
Alternatively, Ragoubi and El Harbi (2018) empirically
analyse the relationship between entrepreneurship and
11
Tékhne – Review of Applied Management Studies
income inequality using a static spatial panel data approach.
They argue that income inequality is a great contributor to
increasing entrepreneurial activities. A possible explanation is
that high-income inequality suggests a greater population in
the lower level of the economy ladder, and therefore, necessity
entrepreneurship becomes the preferred choice to make a
living. Furthermore, they point out that ‘entrepreneurship’ is
often assumed to have positive connotations, with inequality
having negative connotations, and they ask whether this
is consistent, given that entrepreneurship might induce
inequality? In addition, Ragoubi and El Harbi (2018) follow
Lippmann et al. (2005) by proposing a formulation of the
Kuznets’ curve (Kuznets, 1955, 1963) that hypothesises
a non-linear, inverted U-shaped relationship between
entrepreneurship and income inequality. They conclude that
income inequality can improve entrepreneurial activity after
an economy has reached an adequate level of inequality,
which means that entrepreneurial activity is highest at an
intermediate level of income inequality. They contend that
the increasing phase may be explained by the fact that when
there are small inequalities, there is not sufficient wealth.
They also argue that as inequalities increase, there is wealth
accumulation leading to more enterprise creation. However,
after reaching a certain inequality threshold, this relationship
turns out to be negative.
The detailed statistical analysis of Ragoubi and El
Harbi (2018) suggest that the picture is, as is usually the
case, far more complex than that. The association between
entrepreneurship and inequality and indeed the relationship
between each of these and a variety of other factors – such
as a country’s degree of economic development, per capita
income, research and development, globalisation – are mixed
and contingent on each other and other factors. For instance,
while inequality implies that the wealthy will have resources
that may be invested entrepreneurially, unequal possession of
resources can hamper the ability of other groups to engage in
entrepreneurial activity. Fundamentally, Ragoubi and El Harbi
(2018) find that the spatial aspects of entrepreneurship, within
and between countries, are important. They also conclude
that public policy can and does have important effects on all
the above factors, so the key is that such policies that are
aimed at promoting entrepreneurship, and those that are
aimed at tackling excessive inequality, need to take proper
account of the variety of possible intended and unintended
consequences, so that both sets of policies can deliver
successfully their outcomes, of fostering an entrepreneurship
that does not require or create inequality.
In this article, we provide a novel empirical study by
attempting to estimate the influence of income inequality
on entrepreneurship. We seek to address this gap in the
literature, which also forms the basis of our overall research
question: Does income inequality affect entrepreneurship? In
12
this regard and following Lippmann et al. (2005), we address
the following assumption: countries with greater income
inequality have higher rates of entrepreneurial activity. To
answer that fundamental question, our empirical research
extends the study of Ragoubi and El Harbi (2018) by using the
dynamic spatial panel data (DSPD) models. Recently, there is
a growing literature on DSPD models, both theoretically and
empirically. Compared with non-spatial dynamic panel data
models where serial correlation occurs in the time dimension,
the DSPD models may have a correlation in the time
dimension as well as spatial correlation across spatial units. As
argued by Baltagi, Fingleton, & Pirotte, (2019), Elhorst (2012,
2014a, b), Elhorst, Zandberg, & de Haan, (2013), Fingleton
(2017, 2019), Fingleton and Szumilo (2019), Lee and Yu
(2010a b, 2014), Yesilyurt and Elhorst (2017), among others,
DSPD models are able to deal with unobservable spatial,
individual and/or time-period specific effects. They also tackle
more efficiently endogeneity problems, such as the potential
bias in the coefficient of the spatial lag of the dependent
variable. Gains of using dynamic spatial versus static spatial
panels are somewhat described by Doran and Fingleton
(2018), Fingleton (2017) and among others. Fingleton (2017)
takes a constructively critical view of spatial econometrics by
focusing on the advantages of DSPD modelling approach.
As argued by Doran and Fingleton (2018), DSPD modelling
approach has a clear advance on the static spatial panel
approach, which does not take into account, the time
dependency in spatiotemporal series. Besides, they state
that DSPD estimation considers the potential endogeneity of
the regressor. In addition, DSPD approach allows avoiding
omitted variables bias by introducing covariates.
In this article, we contribute to the previous empirical
literature in two ways. First and foremost, we extend the
empirical work of Ragoubi and El Harbi (2018) by investigating
the spatial dependence and intertemporal dynamics of
entrepreneurship jointly using dynamic spatial panel data
econometrics. Accordingly, we provide new statistical support
to the view of others on the empirical relationship between
entrepreneurship and income inequality (Lippmann et al.,
2005; Ragoubi & El Harbi, 2018; Reynolds, Hay, & Bygrave,
2002; Stiglitz, 2012; Xavier-Oliveira et al., 2015). To the best
of our knowledge, this work is the first to assess the effects
of income inequality on entrepreneurial activity using dynamic
spatial panel data models. Note that a better understanding
of the spatial and serial dynamics of entrepreneurship is
important since the literature shows that entrepreneurship
matters for regional growth (Acs, Braunerhjelm, Audretsch, &
Carlsson, 2009; Audretsch & Keilbach, 2004; Carree & Thurik,
2003; Fossen & Martin, 2018; Pijnenburg & Kholodilin, 2014).
Accordingly, we analyse how entrepreneurial activity spreads
over to neighbouring countries and its local persistence over
time. Besides, both spatial dependence and serial dynamics

of entrepreneurial activity are considered as indicators of
knowledge spillovers over space and time. Second, and
contrary to Ragoubi and El Harbi (2018), we avoid an arbitrary
choice of the spatial weights matrix and instead apply a
Bayesian approach to find the parameterised matrix that
best reflects spatial dependence of entrepreneurial activity
(LeSage, 2014, 2015).
The remainder of this article is structured as follows.
Section 2 outlines the econometric methodology. Section 3
gives an overview of the data and spatial weight matrices.
The empirical results are presented in section 4 and section
5 concludes the paper.
2. Methodology
Model and estimation strategy
Following Elhorst et al. (2013), the DSPD model takes the
following form:
(1)
where is an vector consisting of one observation of
the dependent variable for every spatial unit
in the sample at a particular point in time
and denotes an matrix of exogenous explanatory
variables. Note that a vector or a matrix with subscript
stands for its serially lagged value, while a vector
or a matrix premultiplied by denotes its spatially lagged
value. Moreover, the matrix denotes a non-
negative matrix of known constants describing the spatial
arrangement of the units in the sample. It should be stressed
that the diagonal elements of the matrix are set to 0 by
assumption since no spatial unit can be viewed as its own
neighbour. Furthermore, the parameters , and denote
the response parameters of the dependent variable lagged
in time, , the dependent variable lagged in space,
, and the dependent variable lagged in both space
and time, . The variables and stand
for contemporaneous and lagged endogenous interaction
effects among the dependent variables. Besides, is
called the spatial autoregressive coefficient, while might
be labelled the lagged spatial autoregressive coefficient.
Note that the parameter is assumed to be restricted to
the interval . In addition, the vector stands
for the response parameters of the exogenous explanatory
variables.
Following Baltagi (2005), the vector
contains spatial specific effects
which allow controlling for all spatial-specific, time-invariant
variables whose omission could bias the estimates in a typical
cross-sectional study. Likewise, denote
H. Ragoubi et al.: Entrepreneurship and income inequality...
time-period specific effects, where is an vector
of ones, which allow controlling for all time-specific, unit-
invariant variables whose omission could bias the estimates
in a typical time-series study. It should be stressed that these
spatial and time-period specific effects may be treated as fixed
effects (FE) or as random effects (RE). Finally,
denotes vectors of disturbance terms, whose elements
have zero mean and finite variance .
is an matrix with non-negative elements
describing the spatial arrangement of the spatial units in the
sample. By assumption, the diagonal elements of are set to
0 since no spatial unit can be viewed as its own neighbour. As
argued by LeSage and Pace (2009), if is row normalised,
then and are defined on the interval , where
equals the most negative purely real characteristic root
of .
Three types of spatial dynamic models are considered by
Anselin (2001) and Anselin et al. (2008): pure space recursive
model , time–space recursive model
and time–space simultaneous model . In this study,
we take the model in Eq. (1) as our point of departure. Yu
et al. (2008) consider the log-likelihood function of Eq. (1) in
order to estimate the parameters of this model. They take into
account the Jacobian term that reflects the endogeneity of the
, variable, that is, the fact that one spatial unit can affect
another spatial unit and vice versa. The obtained estimator
is called the Quasi Maximum Likelihood (QML) estimator.1
Furthermore, Yu et al. (2008) show that this QML estimator
is biased when both the number of spatial units and
the number of time points in the sample go to infinity
such that . In addition, they introduce
a bias-corrected QML estimator, which produces consistent
parameter estimates, provided that the model is stable, that
is, .
It should be stressed that when , their QML and
bias-corrected QML estimators are found to be consistent.
However, Yu et al. (2008) point out that when ,
the bias-corrected QML estimator is an improvement upon the
consistency of the QML estimator. Besides, Yu et al. (2008)
argue that if the condition is not satisfied, the
(bias-corrected) QML estimator needs further adjustment.
Non-stability
As argued by Elhorst (2014a, b) and Elhorst et al. (2013),
the estimation of the DSPD model is not straightforward if it
turns out that the condition is not satisfied,
that is, if the model is unstable. Lee and Yu (2010a) and Yu
et al. (2012) propose to transform the model in spatial first
, differences to exclude potentially unstable components in .
1 The term ‘quasi’ is used because the error terms are not assumed
to be normally distributed.
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 Tékhne – Review of Applied Management Studies

This is done by taking every variable in the DSPD model in by the matrix that allows dropping the number of
deviation of its spatially lagged value. Mathematically, this is observations. However, Elhorst (2014a, b) argues that this
equivalent to multiplying Eq. (1) by the matrix , which decrease in the number of observations is only a reduction
yields the following expression: in the number of degrees of freedom because the information
of all observations is still implied in the data. Second,
(2) since the transformation reverses the transformation
(except for degrees of freedom), we have
. Third, Lee and Yu (2010a) point out
where denotes the identity matrix of order and that since
.
Eq. (2) has some important properties, which require further (4)
explanation. First, since , all time-period
FE are eliminated from the DSPD model. As noted by Elhorst Eq. (3) can be rewritten as follows:
(2014a, b), these FE do remain effective, since the estimation
of a model formulated in levels produces the same parameter (5)
estimates as the estimation of that model reformulated in
spatial first differences without time-period FE. According to Elhorst (2014a, b) note that the parameters of Eq. (5) can
Elhorst (2014a, b), the reason to renounce the first approach is be consistently estimated by the same bias-corrected (Q) ML
the need to remove the inconsistency caused by the possibly estimator that is used to estimate Eq. (1). Furthermore, Yu
unstable character of the dependent variable . Second, et al. (2012) demonstrate that the transformed model will be
Elhorst (2014a, b) points out that since first differencing in stable if , where is the
time would reduce the number of observations available for second largest eigenvalue of the spatial weights matrix . It
estimation, so does first differencing in space. Third, since is important to note that the latter restriction is less restrictive
it is assumed that and , then than the original restriction .
, where . It should be stressed that there are three differences
According to Elhorst (2014a, b), this change of the variance– between Eqs. (5) and (1). First, the number of degrees of
covariance matrix from into needs to be accounted freedom in each time period is instead of . Second,
for when estimating the parameters of Eq. (2). time-period FE are wiped out, although their effectiveness is
Following Elhorst (2014a, b), since the eigenvalues of not. Third, the matrix is replaced by . Note that the row
the matrix are equal to elements of , in contrast to those in , do not necessarily
, where each is a particular eigenvalue of the spatial sum up to 1. However, the eigenvalues of are
weights matrix , and the largest eigenvalue of is identical to those of that remain after the unit eigenvalue
1 , provided that is normalised, at least one of is excluded.
eigenvalue of the matrix will be 0. This implies that
and thus that this matrix does not have full Direct, indirect and spatial spillover effects
rank. Furthermore, if does have rank instead Following Elhorst et al. (2013) and Yu, de Jong, & Lee,
of , so does . Let denote the (2012), the DSPD model in Eq. (1) has the following error
diagonal matrix of non-zero eigenvalues of , and correction model (ECM) representation (see also Elhorst,
the corresponding orthonormal matrix of 2014a, b):
eigenvectors. Then, Eq. (2) can be transformed by the matrix
, to get the following expression: (6)

where denotes first differences in time, that

(3) is, the change of the dependent variable in time. Furthermore,
Eq. (6) may be rewritten as follows:
According to Elhorst (2014a, b), the latter transformation has
three possible effects. First, since is an (7)
matrix, the transformation reduces the
length of to . It should be stressed that the same Note that Eq. (7) can also be obtained from Eq. (1) by
applies to the length of the transformed matrices or vectors subtracting from and adding to both sides of
, and . This represents the perfect linear combination this equation and rearranging terms. Eq. (7) shows that the
among the observations owing to the multiplication of Eq. (1) change in the dependent variable in period is explained

14

not only by the initial level of the dependent variable of the
spatial unit itself in the preceding year , but also by
the initial levels of the dependent variables of other spatial
units in the preceding time period . Besides, it
should be stressed that the coefficient of the initial level in the
spatial unit itself, , is smaller than 0. This observation
indicates that an increase of the dependent variable becomes
more likely if the initial value of that variable is relatively low.
Furthermore, the sign of the coefficient of the initial levels in
other spatial units, , is expected to be positive. This
evidence indicates that an increase of the dependent variable
becomes also more likely if the initial value of that variable in
other spatial units is already relatively high.
Furthermore, Eq. (7) indicates that the dependent
variable in one spatial unit is explained by the dependent
variable in other spatial units, depending on the specification
of the spatial weights matrix . Note that this term
represents the regional diffusion effect and allows for different
specifications of the spatial weights matrix .
It should be stressed that several empirical studies use
point estimates of one or more spatial regression models
to test the assumption as to whether or not spatial spillover
effects exist. Nevertheless, this may lead to erroneous
conclusions (LeSage & Pace, 2009). In addition, LeSage and
Pace (2009) point out that a partial derivative interpretation
of the impact of changes to the variables of different model
specifications represents a more valid basis for testing this
hypothesis.
Following Elhorst (2014a, b) and Elhorst et al. (2013), one
could focus on the ECM representation and, related to that,
on the marginal (direct and indirect) effects estimates of a
change in one of the explanatory variables or the change in
the dependent variable in the short term and in the long
term. The matrix of partial derivatives of with respect
to the kth explanatory variable of in spatial unit up to
spatial unit (say for , respectively), both
at a particular point in time , take the following form:
(8)
Besides, these partial derivatives have the following
properties. First, if a particular explanatory variable in a
particular spatial unit changes, not only the dependent
variable in that spatial unit will change but also the dependent
variable in other spatial units. The first is called a direct effect
and the second an indirect effect. Note that every diagonal
element of the matrix on the right-hand side of Eq. (8)
represents a direct effect and that every non-diagonal element
represents an indirect effect. Direct effects are different since
H. Ragoubi et al.: Entrepreneurship and income inequality...
the diagonal elements of the so-called spatial multiplier matrix
are different for different spatial units, provided
that . Likewise, indirect effects are different since the
non-diagonal elements of that matrix are different. Since the
direct and the indirect effects are different for different spatial
units in the sample, the presentation of both effects is not
straightforward. Therefore, LeSage and Pace (2009) propose
to measure the direct effect by the average of the diagonal
elements and the indirect effect by the average of either the
row sums or the column sums of the non-diagonal elements
of that matrix. Moreover, the total effect is the sum of the
direct and indirect effects. Besides, Eq. (8) shows that these
marginal effects estimates are independent of the time index.
One could compute the effects estimates of convergence.
Using the ECM representation in Eq. (6), we get the following
expression:
(9)
Importantly, Elhorst (2014a, b) and Elhorst et al. (2013)
suggest that the average diagonal element of this matrix
measures the strength of the convergence effect of the spatial
units themselves and the average row sum of the off-diagonal
elements of the convergence effect of other spatial units.
According to Yu et al. (2012), a specific situation occurs
if , which is labelled as spatial cointegration.
They point out that the cointegration matrix is
and the cointegration rank is the number of eigenvalues of
that are smaller than , which is . Furthermore, if
, we get the following expression:
(10)
It should be stressed that if is row normalised, the total
effect of this partial derivative equals 0 by construction.
According to Elhorst (2014a, b) and Elhorst et al. (2013),
this finding is due to the perfect linear combination among
the observations caused by the matrix . Note that
the direct effect of this matrix equals 1 because the diagonal
elements of the identity matrix are 1 and of are 0.
Moreover, the indirect effect of this matrix equals since
the off-diagonal elements of the identity matrix sum up to 0
and of to 1, provided that is row normalised. Therefore,
the total effect equals 0 . This result means that
the change in the dependent variable in different spatial units
over time does not converge if this variable turns out to be
spatially cointegrated.
As argued by Elhorst (2014a, b) and Elhorst et al.
(2013), the direct and indirect effects on the change in the
dependent variable , which can be computed from Eq.
(8), are identical to the short-term direct and indirect effects
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Tékhne – Review of Applied Management Studies
of changes in the explanatory variables on the level of the
dependent variable (see also Debarsy, Ertur, & LeSage,
2012). Nevertheless, this property does not hold for the long-
term effects (Elhorst, 2014a, b; Elhorst et al., 2013). In addition
to the one-period ahead, Debarsy et al. (2012) derive the
-period ahead matrix from which the long-term direct and
indirect effects of changes in the explanatory variables on
the dependent variable can be computed. Elhorst (2014a, b)
and Elhorst et al. (2013) point out that this matrix reduces to
in the long term. They also
indicate that if the model is spatially cointegrated, the matrix
in square brackets is singular, as a result of which the long-
term direct and indirect effects are not defined. Accordingly,
this evidence justifies the treatment of as a
special case and the focus on rather than .
3. Data, variables and spatial weight matrices
The sample consists of 72 countries2, over the period
2004−2014, for which we subdivided3 it into two subgroups:
the high-income countries (HIC) (N=33, T=11) and middle-
income and low-income countries (MLIC) (N=39, T=11). Note
that this categorisation is justified due to the socioeconomic
and political differences between MLIC and HIC. In addition,
this separation of countries makes each group of countries
more homogenous and therefore enables us to reduce the
level of heteroskedasticity that otherwise we might face when
estimating the models.
We gathered data on the entrepreneurial activity,
income inequality and other macroeconomic indicators
from several sources (see Table 1). Spatial econometric
research requires that the spatial panel be balanced.
Therefore, missing observations should be avoided as far
as possible. Note that the initial sampling point is the World
Bank Group Entrepreneurship Snapshot (WBGES) data set
of 115 developed and developing countries for the 2004–
2014 period. In the analysis, the world sample was finally
2 The list of HIC includes Austria, Belgium, Canada, Chile, Croa-
tia, Cyprus, Czech, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania,
Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, Slo-
venia, Spain, Sweden, Switzerland, United Kingdom, United States
of America, and Uruguay. The list of middle and low income coun-
tries includes Argentina, Armenia, Bolivia, Bosnia and Herzegovina,
Botswana, Brazil, Bulgaria, Burkina Faso, Cambodia, China, Colom-
bia, Congo Democratic Republic, Costa Rica, Dominica, Dominican
Republic, El Salvador, Ethiopia, Georgia, Ghana, Guatemala, India,
Indonesia, Jamaica, Jordan, Kazakhstan, Kyrgyz Republic, Mace-
donia, Malawi, Malaysia, Mauritius, Moldova, Montenegro, Panama,
Peru, Romania, Russian Federation, Tunisia, Turkey, and Ukraine.
3 World Bank’s classification of countries by income.
16
trimmed to 72 countries and included only those countries
that simultaneously appeared in the World Income Inequality
Database, WBGES, Worldwide Governance Indicator, World
Economic Outlook, World Economic Forum and globalisation
data sets during the 2004−2014 period. Following Ragoubi
and El Harbi (2018), the entrepreneurial activity rate could
be measured through the New Business Entry Density (see
also Armington & Acs, 2002; Bartelsman, Haltiwanger, &
Scarpetta, 2004; Herrera-Echeverri, Haar, & Estevez-Breton,
2014; Klapper, Laeven, & Rajan, 2006; Klapper & Love, 2010;
Verheul, 2009) and the self-employment rate (see also Acs &
Amoros, 2008; Amoros & Cristi, 2008; Amoros, Fernandez, &
Tapia, 2012; Carree, Van Stel, Thurik, & Wennekers, 2002,
2007). The New Business Entry Density is calculated as the
number of new companies registered by every 1000 people of
working age (using a standard range of 15–64 years of age).
The self-employment (or business ownership) is measured as
a percentage of employment.
Similar to Ragoubi and El Harbi (2018), we consider
three categories of independent and control variables in
: economic, social and demographic. The GINI coefficient
of income inequality is chosen as the main independent
variable (Ragoubi & El Harbi, 2018). As control variables, we
use the gross domestic product (GDP) per capita (Ragoubi
& El Harbi, 2018; Van Stel, Carree, & Thurik, 2005), the
governance or institutional quality index4 (Herrera-Echeverri
et al., 2014; Kaufmann, Kraay, & Mastruzzi, 2009, 2010;
McMullen, Bagby, & Palich, 2008; Ragoubi & El Harbi, 2018;
Van Stel, Storey, & Thurik, 2007; Wennekers et al., 2005),
the Konjunkturforschungsstelle (KOF) globalisation index5
(Dreher, 2006; Dreher, Gaston, & Martens, 2008; Ragoubi &
El Harbi, 2018), the gross domestic expenditure on research
and development (Deeds, 2001; Ragoubi & El Harbi, 2018),
the population growth rate (Armington & Acs, 2002; Ragoubi
& El Harbi, 2018; Wennekers et al., 2005) and the global
4 World wide Governance Indicators (WGI) comprises aggregate
and individual governance indicators for 215 countries and territories
covering the period 1996−2014. It covers six dimensions of institutio-
nal quality: voice and accountability (VA); political stability and the ab-
sence of violence/terrorism (PS); government effectiveness (GE); re-
gulatory quality (RQ); rule of law (RL); and control of corruption (CC).
The definitions and sources for the calculation of each one are found
in Kaufmann et al. (2010). A principal component analysis (PCA) is
performed over this set of indicators to reduce data to a suitable num-
ber of dimensions. For both HIC and MLIC, the analysis reveals that
one single factor is extracted from the PCA (the results are available
upon request).
5 The overall index covers the economic, social, and political di-
mensions of globalization. Following Clark (2000) and Keohane and
Nye (2000), it defines globalization as the process of creating net-
works of connections among actors at multicontinental distances,
mediated through a variety of flows including people, information and
ideas, capital, and goods.
 H. Ragoubi et al.: Entrepreneurship and income inequality...

Table 1. Variables and data sources

Variables Data source

Entry density (NEW DENSITY)
Self-employment
GINI index (GINI)
Gross domestic product per capita
Government (institutional quality) index
Gross domestic expenditure on Research
and Development (GERD)
Population growth rate (POP_GR)
KOF index of globalisation
Global Competitiveness Index
World Bank Group Entrepreneurship Snapshots (WBGES).
http://www.doingbusiness.org/data/exploretopics/entrepreneurship
World Bank
World Bank annual Doing Business report
UNU/WIDER World Income Inequality Database (WIID).
http://www.wider.unu.edu/research/Database/en_GB/database/
World Bank
World Economic Outlook (WEO)
Author’s calculation.
Research and Development Statistics (RDS) – Organisation for Economic Co-operation and Development
www.oecd.org/sti/rds
World Development Indicators (WDI) – World Bank
http://data.worldbank.org/data-catalog/world-development-indicators
Konjunkturforschungsstelle (KOF) Index
http://globalization.kof.ethz.ch/.
World Economic Forum (WEF)
The Global Competitiveness Reports
http://www.weforum.org/reports/global-competitiveness-report.

Table 2. Descriptive statistics.

Panel A: HIC Panel B: MLIC

Mean Std. Dev. Mean Std. Dev.

1.201 0.865 0.128 1.642

2.685 0.398 3.517 0.571

3.426 0.182 3.697 0.219

4.395 0.090 4.052 0.177

1.566 0.173 1.389 0.132

10.308 0.673 8.031 1.034

0.357 0.654 −1.072 0.977

0.000 1.000 0.000 1.000

0.405 0.793 1.142 1.078

HIC, high-income countries; MLIC, middle-income and low-income countries.

competitiveness index6 (Amoros et al., 2012; Ragoubi and
El Harbi, 2018). Note that except governance and population
growth rate, all the remaining variables enter the empirical
model in logarithmic form. It should be also stressed that by
6 The World Economic Forum has been measuring national com-
petitiveness and filing Global Competitiveness Reports (GCR). The
key purpose of the GCR is to evaluate the capacity of the world’s
economies to achieve sustained economic growth. The GCR me-
thodology has been based on the model developed by McArthur and
Sachs (2002), known as the Growth Competitiveness Index (GCI).
The GCI attempts to quantify the impact of a number of key factors
that contribute to create the conditions for competitiveness, with par-
ticular focus on the macroeconomic environment, the quality of the
country’s institutions, and the state of the country’s technology and
supporting infrastructure.
including the spatial lags of all explanatory variables in the
model, we can separate spillovers from characteristics of
neighbouring countries.
Summary statistics are reported in Table 2. In general, all
the variables show a high variability suitable for exploratory
investigations. From Table 2, it can be seen that the
standard deviation of both dependent variables, that is,
ln(NEWDENSITY) and ln(SELF), is higher for MLIC than
that for HIC. In addition, the mean values of these series are
positive across the two country groups.
Following Elhorst et al. (2013) and Yesilyurt and Elhorst
(2017), we use four principles in order to construct the
following four spatial weight matrices:
• The first-order binary contiguity matrix, denoted by :
sharing a common land or maritime border (Goldsmith,

17
Tékhne – Review of Applied Management Studies
2007; Skogstad, 2016; Yesilyurt & Elhorst, 2017). Note
that maritime borders are based on the United Nations
Convention on the Law of the Sea and additional sources
further explaining this convention.
• The second-order binary contiguity matrix, denoted
by : the influence of a country might go beyond its
immediate neighbours, as implied by the inverse distance
matrix (Goldsmith, 2007) and the different cut-off points
(Florez, 2011).
• The third-order binary contiguity matrix, denoted by : specifications. With these probabilities, the most likely spatial
a country may respond to the threat of even more distant
countries, which is also the main reason that elements of
the weight matrix within a certain radius of a country are
not always set to 0.
• The spheric matrix, denoted by : this matrix is based
on the calculation of distances using the spherical
distance (in km) between geographic centroids of the
countries.7
Following the literature, one can predict that
geographically closer countries will have a stronger
influence on a country in terms of entrepreneurial activity
than more distant countries. However, the theory does not
give guidance on how quickly the influence diminishes when
distance increases. This is an empirical question that we
aim to answer in this study. Therefore, we parameterise
the spatial weight matrix search for the most appropriate
matrix by using a Bayesian comparison approach (da Silva,
Elhorst, & da Mota Silveira Neto, 2017; Elhorst et al., 2013;
LeSage, 2014, 2015; Yesilyurt & Elhorst, 2017). By finding
an optimal spatial weight matrix between close and distant
neighbours, this approach delivers a good approximation of
the underlying spatial dependence of entrepreneurial activity.
In addition, this procedure allows us to inspect the sensitivity
of the estimated coefficients with respect to different spatial
weight matrices.
7 With the exception of the matrix based on the common border
countries, the spatial weight matrix could be also based on the calcu-
lation of distances using the spherical distance between geographic
centroids of the countries (Abate, 2016; Eckel, Löffler, Maurer, &
Schmidt, 2011; Longley et al., 2001). Accordingly, for each country
pair, we compute the distance between headquarter locations based
on the geographical coordinates of the countries. Formally, the spheri-
cal distance (in km) between the centroids of two countries and is
defined as follows:
where denotes the earth radius ( miles or km),
which is the approximate distance from Earth’s center to its surface,
represents the latitude of the centroid of country , while is the
longitude of the centroid of country .
18
4. Results and discussions
Baseline results
Tables 3 and 4 report the Bayesian posterior model probabilities
of the different spatial panel data models (spatial autoregressive
(SAR), spatial Durbin model (SDM), spatial error model (SEM),
spatial Durbin error model (SDEM)) in combination with the
four proposed spatial weight matrices. These probabilities are
computed for both static and dynamic versions of the model
panel econometric model and the most likely spatial weight
matrix could be simultaneously identified. It should be stressed
that the probabilities are based on the log-marginal likelihood
obtained by integrating out all parameters of the model over
the entire parameter space on which they are defined. Besides,
these probabilities are normalised such that the probabilities
of all 16 combinations sum to 1. As argued by Goldsmith
(2007), LeSage (2014, 2015), Skogstad (2016) and Yesilyurt
and Elhorst (2017), this normalisation is based on the (non-
linear) property that the Bayesian posterior model probability
increases if the log-marginal likelihood value of one model or
one exceeds that of another model or .
The results in Table 3 show that the SDM outperforms the
other models in almost all 16 cases, for both the HIC and MLIC
data sets. Row totals for this model range from 0.9936, based
on the first, to 0.9937 for the second data set. This finding is
not striking, especially considering that the SDM is much general
than both the SAR and SEM specifications and requires that the
coefficients of all exogenous spatial lags are jointly significant
. This finding corroborates previous results by Ragoubi
and El Harbi (2018). The spatial interaction among countries
appears driven not only by the endogenous spatial lag, and
countries adapt their entrepreneurial activity rate to those of their
neighbours and also to other variables observed in neighbouring
countries. Therefore, the extension of the entrepreneurial activity
function with the variable is necessary.
The most likely spatial weight matrix differs across the
two data sets. The HIC data set favours the third-order binary
contiguity matrix . This matrix outperforms others no matter
which spatial panel econometric model is used. The MLIC data
set instead favours the spheric contiguity matrix .
The results in Table 4 are similar to those reported in Table
3. More precisely, they show that the SDM outperforms the
other models in almost all 16 cases, for both the HIC and
MLIC data sets. Row totals for this model range from 0.7745,
based on the second, to 0.9577 for the first data set. This
finding also corroborates the previous findings by Ragoubi
and El Harbi (2018).
Estimation results
In this section, we are interested in simultaneously estimating
spatial dependence and serial dynamics of entrepreneurial
 H. Ragoubi et al.: Entrepreneurship and income inequality...

Table 3. Simultaneous Bayesian comparison of model specifications and spatial weight matrices (dependent variable: )
(Source: Own calculations, based on LeSage (2014, 2015)).

Data Model Row total

HIC SAR 0.0000 0.0000 0.0000 0.0000 0.0000

SDM 0.0000 0.0008 0.9877 0.0051 0.9936

Dynamic model SEM 0.0000 0.0000 0.0000 0.0000 0.0000

SDEM 0.0000 0.0002 0.0026 0.0036 0.0064

SAR 0.0000 0.0000 0.0000 0.0000 0.0000

MLIC SDM 0.0000 0.0040 0.0002 0.9895 0.9937

Dynamic model SEM 0.0000 0.0000 0.0000 0.0000 0.0000

SDEM 0.0000 0.0053 0.0001 0.0010 0.0064

The highest probability in each row is in italics and the probabilities in each block sum to 1.
HIC, high-income countries; MLIC, middle-income and low-income countries; SAR, spatial autoregressive; SDM, spatial Durbin model, SEM,
spatial error model, SDEM, spatial Durbin error model.

Table 4. Simultaneous Bayesian comparison of model specifications and spatial weight matrices (dependent variable: ) (Source:
Own calculations, based on LeSage (2014, 2015)).
Data Model Row total

HIC SAR 0.0001 0.0002 0.0000 0.0001 0.0004

SDM 0.0000 0.0003 0.0130 0.9444 0.9577
Dynamic model SEM 0.0001 0.0000 0.0000 0.0000 0.0001
SDEM 0.0000 0.0001 0.0079 0.0338 0.0418
SAR 0.0004 0.0009 0.0005 0.0005 0.0023
MLIC SDM 0.0000 0.0003 0.0000 0.7742 0.7745
Dynamic model SEM 0.0004 0.0008 0.0006 0.0004 0.0022
SDEM 0.0000 0.0002 0.0000 0.2207 0.2209

The highest probability in each row is in italics and the probabilities in each block sum to 1.
HIC, high-income countries; MLIC, middle-income and low-income countries; SAR, spatial autoregressive; SDM, spatial Durbin model, SEM,
spatial error model, SDEM, spatial Durbin error model.

activity rates while controlling for spatial unit and FE Following the results of the Bayesian model comparison, the
and covariates pertaining to the focal countries and their dynamic variant of SDM, which includes the spatial lags of all
neighbours. We estimate a general and flexible model including explanatory variables, is expressed as follows:
spatial, serial and spatiotemporal lags of the entrepreneurial
activity rate. Spatial interactions of entrepreneurial activity (11)
might occur within a year, that is, instantaneously in our
model based on annual observations, which is especially In Eq. (11), the endogenous variable is the log
plausible if fast knowledge spillovers play a central role, entrepreneurial activity rate in country and year . We include
or they could unfold with a longer time lag. Accounting for the time lag with the intertemporal autoregressive
country unit and FE and further control variables is necessary coefficient , which captures the path dependency of
to separate interactions among entrepreneurial activity from entrepreneurial activity within the geographical country.
other potential effects. This strengthens the interpretation Potential spatial interactions with other countries are modelled
of space and time dynamics as knowledge flows from by including a spatial lag , where is the total
entrepreneurial activity rates to other entrepreneurial activity number of countries and is the spatial weight. It represents
rates in neighbouring countries or subsequent years. the element of a non-negative spatial weight

19
Tékhne – Review of Applied Management Studies
matrix , which defines the neighbouring countries. The
weight may be 0 when the distance between countries
and is large. The spatial autoregressive coefficient to
be estimated indicates the strength of spatial dependence
of country entrepreneurial activity. The vector
includes the control variables and the vectors includes
and the coefficients that reflect the influences of these
variables in the same country and from the neighbouring
countries of the focal country. The model includes unobserved
country FE , and is the remaining error term.
In our baseline specification, we include a spatiotemporal
lag of the dependent variable, that is, we use the restriction
, as not often done in the literature (e.g., Devereux,
Lockwood, & Redoano, 2007; Elhorst, 2005, 2010; Parent &
LeSage, 2012).
Table 5 reports the main empirical findings of the
dynamic SDM specification, based on the HIC data set
and the matrix and with as the
dependent variable. Note that the model parameters are
estimated using the bias-corrected ML estimator (Lee & Yu,
2010a). As argued by Baltagi (2005), the bias correction
is necessary since the demeaning procedure to eliminate
the country FE in a standard panel data model produces a
singularity among the transformed error terms if the model
is augmented with a spatial lag in the dependent variable,
causing the asymptotic distributions of the parameters not to
be properly centred.
As shown in Table 5, the estimation results indicate
that the coefficients of the dependent variables lagged in
time and in both space and time
are, respectively, positive and
negative but not statistically significant in the dynamic SDM.
However, the coefficient of the dependent variable lagged
in space is negative and statistically
significant at the 1% level. Besides, the coefficient estimates
of the independent variables show that the GINI and the
squared GINI are successively positive and negative but
not statistically significant. GDP per capita is negative
and thus significantly set back the entrepreneurial activity.
Conversely, the squared GDP per capita, the interaction
between income inequality and economic development,
the global competitiveness and the globalisation lead to
significant higher entrepreneurial activity.
To find out whether the model including country FE is
stable, we calculated and carried out a Wald test
to investigate the (null) hypothesis . This
Wald test has also been used in the two empirical illustrations
of Elhorst et al. (2013) and Lee and Yu (2010a). As argued by
Elhorst et al. (2013) and Lee and Yu (2010a), if
turns out to be significantly smaller than 1, the model is
stable. Besides, if is greater than 1, the model
is explosive. In addition, if the hypothesis
20
cannot be rejected, the model may be said to be spatially
cointegrated. Moreover, Elhorst et al. (2013) and Lee and Yu
(2010a) argue that when the model turns out to be non-stable
(explosive or spatially cointegrated), it must be reformulated
in spatial first differences and its coefficients must be re-
estimated according to its transformation in Eq. (3) for which
we use Eq. (5) to obtain consistent parameter estimates. As
shown in Table 5, a necessary and sufficient condition for
stationarity, , is also satisfied.
In Table 6, we present the estimation results of the
dynamic SDM specification, based on the MLIC data set
and the matrix, and with as the
dependent variable. As shown in Table 6, the entrepreneurial
activity indicator strongly depends on its value in the
previous year; its coefficient amounts to and is
highly significant (1% level). Moreover, the coefficient of the
entrepreneurial activity observed in neighbouring countries in
the previous period is negative but not statistically significant
( , -value ). However, countries
respond to the entrepreneurial activity in neighbouring
countries in the same year, such that the coefficient takes
a negative value of and is highly significant (
-value ). It should be stressed that the inclusion
of the endogenous spatial lag has a downward effect on the
entrepreneurial activity parameter.
Furthermore, the results show strong support for the
existence of an inverted U-shaped relationship between
entrepreneurship and income inequality espoused by the
Kuznets Curve hypothesis. This important finding confirms
some of the results of previous work of Ragoubi and El Harbi
(2018) (see also Lippmann et al., 2005; Reynolds et al., 2002;
Xavier-Oliveira et al., 2015). Furthermore, entrepreneurship
has a significant non-linear relationship with GDP per capita
(Acs & Amoros, 2008; Amoros & Cristi, 2008; Carree et al.,
2007; Ragoubi & El Harbi, 2018; Wennekers et al., 2005,
2010). Additionally, the coefficient estimates of the remaining
independent variables show that the interaction between
income inequality and economic development is negative
and thus significantly set back the entrepreneurial activity.
On the contrary, the globalisation index leads to significant
higher entrepreneurial activity. The Wald test reported in Table
6 shows that the dynamic SDM of the entrepreneurial activity
rate is stable because the condition that is
satisfied.
In Table 7, we present the estimation results of the
dynamic SDM specification, based on the HIC data set
and the matrix, and with as the dependent
variable. The coefficients of the dependent variables
lagged in time and in both space and time
are both positive and statistically significant
in the dynamic SDM. Besides, the coefficient of the dependent
variable lagged in space is negative and

statistically significant. In addition, the coefficient estimates
of the independent variables show that only globalisation and
governance indicators have significant positive impacts on
the entrepreneurial activity rate. A necessary and sufficient
condition for stationarity, , is also
satisfied.
In Table 8, we present the estimation results of the dynamic
SDM specification, based on the MLIC data set and the
matrix, and with as the dependent variable.
The coefficients of the dependent variables lagged in time
and in both space and time
are both positive and statistically significant in the dynamic
SDM. Besides, the coefficient of the dependent variable
lagged in space is negative and statistically
significant. The coefficient estimates of the independent
variables show that income inequality and per capita income
significantly set back entrepreneurial activity. Conversely,
both squared income inequality and squared per capita
income lead to significant higher entrepreneurial activity.
These results do not confirm some of the results of previous
work of Ragoubi and El Harbi (2018). Therefore, the inverted
U-shaped relationship between entrepreneurship and income
inequality is not supported. A necessary and sufficient
condition for stationarity, , is also
satisfied.
Short-run and long-run effects
In this section, we use the parameter estimates of the dynamic
SDM to compute direct and indirect effects of the different
explanatory variables on entrepreneurial activity, that is, the
average of the diagonal elements and the row/column sums
of the matrix of partial derivatives. These direct and indirect
effects, as well as the total effects, are reported in Tables
5–8, respectively. Table 5 reports the short-run and long-run
effects from the dynamic SDM, based on the HIC data set
and the matrix, and with as the
dependent variable. Both the short-run and long-run effects
are decomposed into direct and indirect (spillover) effects
in order to isolate the spatial spillover effects. In a dynamic
context, if the short-term effect is smaller than the long-term
effect, then the lagged effects are important. Besides, the
total effect takes into account both own-country and spillover
effects. It should be stressed that both the direct and indirect
short-run effects and the direct and indirect long-run effects
are all statistically insignificant. Therefore, we do not interpret
these marginal effects.
Table 6 displays the short-run and long-run effects from
the dynamic SDM, based on the MLIC data set and the
matrix, and with as the dependent
variable. The coefficient estimates and short-term direct
effects estimates derived from the parameter estimates exhibit
a plausible model structure. The direct effect of a change in
H. Ragoubi et al.: Entrepreneurship and income inequality...
a country’s income inequality, for example, measures how a
change in a particular country affects the perceived levels of
entrepreneurial activity in that same country.
The estimated short-run direct effect of the GINI variable
on the entrepreneurial activity indicator is positive and
statistically significant at the 1% level but greater than . This
result indicates that entrepreneurial activity rate increases with
the level of GINI but more than proportionally. Alternatively,
a one standard deviation8 increase in income inequality in a
given country leads to a standard deviation increase in
the perceived levels of entrepreneurial activity in that country.
Besides, the direct effects are different from the estimates of
the response parameters (see Table 6) in the dynamic SDM.
This is caused by the feedback effects9 that arise as a result
of impacts passing through to other countries and back to
the country itself. Since the direct effect and the coefficient
estimate of income inequality (GINI) are, respectively, 23.0546
and 15.3501, its feedback effect is 7.7045.
Furthermore, the direct effect of the GDP variable on the
entrepreneurial activity rate is also positive and statistically
significant. On the other hand, a one standard deviation
increase in income per capita in a given country leads to a
standard deviation increase in the perceived levels
of entrepreneurial activity in that country. Besides, the
impacts of both the interaction variable and the
global competitiveness index on a country’s
entrepreneurial activity rate are negative and statistically
significant but greater than ; the entrepreneurial activity
rate increases with the levels of these variables but less than
proportionally. A one standard deviation increase in global
competitiveness, for example, in a given country leads to a
standard deviation decrease in the perceived levels of
entrepreneurial activity in that country.
In addition, the direct effects of both the KOF index of
globalisation and governance index
variables are significantly positive, implying that the
entrepreneurial activity indicator increases with a higher level
of these explanatory variables. Alternatively, a one standard
deviation increase in both globalisation and governance
indices in a given country lead to, respectively, and
standard deviation increases in the perceived levels of
entrepreneurial activity in that country. The same interpretation
holds for both squared income inequality and squared GDP
per capita. Therefore, controlling for spatial effects seems to
be relevant. However, a potential change in an explanatory
variable could have a long-term effect on the perceived levels
8 It is defined as the ratio of the standard deviation of an explana-
tory variable and that of the dependent variable multiplied by the esti-
mated coefficient (Donfouet et al., 2016).
9 Feedback effect direct effect− coefficient estimate (Elhorst et al.,
2013).
21
22
Table 5. Results of the dynamic SDM, with as the dependent variable, HIC data and .
Short-term effects Long-term effects
Determinants Coefficients
Direct Indirect (Spillover) Total Direct Indirect (Spillover) Total

Estimate -value Estimate -value Estimate -value Estimate -value Estimate -value Estimate -value Estimate -value
−0.2371*** 0.0000 – – – – – – – – – – – –
0.6151 0.1847 – – – – – – – – – – – –
−0.0634 0.1707 – – – – – – – – – – – –
6.5749 0.8340 33.0276 0.2130 26.7429 0.1836 59.7705* 1.7290 9.6939 0.0133 41.9708 0.0575 51.6647* 1.7252
−2.3062 0.4500 −5.9478 −0.3038 −4.6436 −0.2509 −10.5914*** −2.8225 −3.3516 −0.0396 −5.8064 −0.0686 −9.1580*** −2.8716
−8.5713*** 0.0071 −12.5657 −0.8938 −10.9915 −0.7466 −23.5572*** −3.4297 −14.7616 −0.0687 −5.7570 −0.0268 −20.5186*** −3.4533
0.3032*** 0.0041 0.5214 0.5696 0.4610 0.5066 0.9824*** 5.3665 0.5747 0.0997 0.2823 0.0491 0.8571*** 4.9064
0.7168* 0.0581 0.5411 0.2161 0.4254 0.1832 0.9665 0.7925 1.0145 0.0323 −0.1812 −0.0058 0.8332 0.8018
1.5151** 0.0158 2.1478 0.7391 0.9074 0.3204 3.0552*** 6.8556 5.0680 0.1107 2.6816*** 5.6071
Tékhne – Review of Applied Management Studies

−2.3864 −0.0521
1.4460* 0.0534 3.9318 0.3213 3.5786 0.3059 7.5105*** 6.4342 3.5485 0.0614 2.9994 0.0519 6.5479*** 5.1728
0.1521 0.1157 0.4059 0.2141 0.2994 0.1649 0.7054*** 3.5542 0.1619 0.0238 0.4425 0.0651 0.6044*** 4.1887
−0.0540 0.4697 −0.0510 −0.4019 −0.0018 −0.0145 −0.0528 −0.7218 −0.1452 −0.0559 0.0942 0.0363 −0.0510 −0.7567
0.1593 0.2879 0.1356 0.3420 −0.0044 −0.0116 0.1313 0.6257 0.5269 0.0716 −0.4100 −0.0558 0.1168 0.6416
15.8400 0.2729 – – – – – – – – – – – –
−2.7834** 0.0243 – – – – – – – – – – – –
−6.1308*** 0.0003 – – – – – – – – – – – –
0.2566*** 0.0000 – – – – – – – – – – – –
0.2444 0.1949 – – – – – – – – – – – –
0.7746*** 0.0000 – – – – – – – – – – – –
1.9844*** 0.0000 – – – – – – – – – – – –
0.1877*** 0.0001 – – – – – – – – – – – –
−0.0127 0.3846 – – – – – – – – – – – –
0.0281 0.7965 – – – – – – – – – – – –
R-squared 0.9469 – – – – – – – – – – – – –
0.0867 – – – – – – – – – – – – –
Log-likelihood 49.5915 – – – – – – – – – – – – –
0.3146 – – – – – – – – – – – – –

Wald test 41.0567*** 0.0000 – – – – – – – – – – – –

Wald test for dynamic spatial
155.3223*** 0.0000 – – – – – – – – – – – –
lag model
Wald test for dynamic spatial
116.4366*** 0.0000 – – – – – – – – – – – –
error model

Country fixed effects are included. *Significant at 10%; **significant at 5%; ***significant at 1%.
 Table 6 Results of the dynamic SDM, with as the dependent variable, MLIC data and .
Coefficients Short-term effects Long-term effects
Direct Indirect (Spillover) Total Direct Indirect (Spillover) Total
Determinants
Estimate -value Estimate -value Estimate -value Estimate Estimate -value Estimate -value Estimate -value
-value
−0.2419*** 0.0000 – – – – – – – – – – – –
0.5577*** 0.0000 – – – – – – – – – – – –
−0.0886 0.5070 – – – – – – – – – – – –
15.3501*** 0.0022 23.0546*** 2.5415 −21.7241** −2.1657 1.3305 0.1809 −36.1670 −0.0297 23.6415 0.0236 −12.5255 −0.0529
−1.5314*** 0.0081 −2.3585** −2.0329 2.3160* 1.9162 −0.0425 −0.0535 3.9969 0.0314 −2.5783 −0.0247 1.4186 0.0567
4.3460*** 0.0000 4.9789*** 3.7102 −1.8212 −1.1946 3.1577*** 2.5989 −1.9530 −0.0088 3.3727 0.0182 1.4197 0.0351
−0.1355*** 0.0000 −0.1365*** −3.2002 0.0028 0.0516 −0.1337*** −2.9309 −0.0265 −0.0047 −0.0818 −0.0170 −0.1082 −0.1120
−0.6035** 0.0070 −0.7979*** −2.9710 0.5591* 1.8486 −0.2388 −0.9053 0.7942 0.0206 −0.6299 −0.0198 0.1643 0.0219
0.0007 0.9271 −0.4192* −1.7130 1.1765*** 3.1891 0.7572*** 2.9913 1.9935 0.0496 −0.6996 −0.0201 1.2939 0.2256
0.7987*** 0.0076 1.6903*** 2.7813 −2.5194*** −4.1291 −0.8291** −2.0782 −5.6804 −0.0468 3.3544 0.0327 −2.3260 −0.1119
−0.0517 0.1212 0.1242 1.4742 −0.5010*** −2.6022 −0.3768*** −2.8889 −0.9264 −0.0623 0.2660 0.0229 −0.6604 −0.1927
−0.0196 0.4663 0.1295 1.2915 −0.4300*** −4.3483 −0.3005*** −4.0129 −0.8165 −0.0544 0.3035 0.0237 −0.5129 −0.2142
0.1454 0.1126 0.1938** 2.0564 −0.1484 −1.1218 0.0454 0.4154 −0.4140 −0.0267 0.3321 0.0252 −0.0818 −0.0318
−5.1881* 0.0568 – – – – – – – – – – – –
0.5771* 0.0607 – – – – – – – – – – – –
0.3068 0.8293 – – – – – – – – – – – –
−0.0317 0.4352 – – – – – – – – – – – –
0.0833 0.2343 – – – – – – – – – – – –
0.4854*** 0.0058 – – – – – – – – – – – –
−0.8499*** 0.0000 – – – – – – – – – – – –
−0.2231*** 0.0004 – – – – – – – – – – – –
−0.1838*** 0.0000 – – – – – – – – – – – –
−0.0291 0.5990 – – – – – – – – – – – –
R-squared 0.9819 – – – – – – – – – – – – –
0.0426 – – – – – – – – – – – – –
Log-likelihood 74.7587 – – – – – – – – – – – – –
0.2272 – – – – – – – – – – – – –

Wald test 140.4861*** 0.0000 – – – – – – – – – – – –

Wald test for dynamic spatial
lag model 88.9607*** 0.0000 – – – – – – – – – – – –
Wald test for dynamic spatial
error model 83.1097*** 0.0000 – – – – – – – – – – – –

Notes: Country fixed effects are included. *Significant at 10%; **significant at 5%; ***significant at 1%.

23
H. Ragoubi et al.: Entrepreneurship and income inequality...
Tékhne – Review of Applied Management Studies
of entrepreneurial activity. It should be stressed that none of
the explanatory variables exhibits significance levels for the
long-term direct effects.
There is also an indirect or spillover effect that non-
spatial panel models cannot capture. Furthermore, based
on the -statistics calculated from a set of 1000 simulated
parameter values,10 seven of these indirect effects appear to
be statistically significant in the short term, but none in the
long term. It concerns the impact of income inequality and its
squared form, the interaction between economic development
and income inequality, competitiveness, globalisation,
gross domestic expenditure on research and development
and population growth rate. In other words, if one of these
explanatory variables in a particular country changes, not
only the entrepreneurial activity rate of that country itself but
also that of other countries will change. For instance, the
entrepreneurial activity rate decreases not only with the level
of income inequality in the own country but also, to a lesser
extent, with that in neighbouring countries. Alternatively, a one
standard deviation increase in income inequality in a given
country leads to a standard deviation decrease in the
perceived levels of entrepreneurial activity in neighbouring
countries.
The same interpretation holds for globalisation, gross
domestic expenditure on research and development and
population growth rate variables. Conversely, the squared
income inequality, the interaction between economic
development and income inequality and the global
competitiveness index show significant positive spillover
effects. This finding indicates that the entrepreneurial activity
rate increases not only with the level of each of these variables
in the own country but also with that in neighbouring countries.
Alternatively, a one standard deviation increase in the global
competitiveness index, for example, in a given country leads
to a standard deviation increase in the perceived levels
of entrepreneurial activity in neighbouring countries.
Table 7 displays the short-run and long-run effects from the
dynamic SDM, based on the HIC data set and the matrix,
and with as the dependent variable. By examining
the marginal effects reported in Table 7, the direct effect of
the globalisation variable is positively significant and amounts
to ( -value ), while its indirect effect is
( -value ), but not statistically significant.
The total effect is larger than both direct and indirect effects,
but still significantly positive ( , -value ).
In addition, the direct effect of the governance variable is
positive and statistically significant, which amounts to
10 In order to draw inferences regarding the statistical significance
of these effects, we used the variation of 1000 simulated parameter
combinations drawn from the multivariate normal distribution implied
by the ML estimates (LeSage & Pace, 2009).
24
( -value ), while its indirect effect is also positive and
significantly different from 0 ( , -value ).
By contrast, the indirect effect of a change in the governance
variable in a particular country on other countries appears
to be approximately 67.6758% of the direct effect within that
country. A possible explanation of this indirect effect is that if
the governance variable in a particular country changes, not
only the entrepreneurial activity rate of that country itself but
also that of other countries will change. Furthermore, the direct
effects in the dynamic SDM are different from the estimates
of the response parameters as shown in Table 7. This could
be explained by the feedback effects that arise as a result of
impacts passing through to other countries and back to the
country itself. However, these feedback effects turn out to be
small. For instance, since the direct effect and the coefficient
estimate of governance (gov) are, respectively, and
, its feedback effect is only . Moreover, since
the direct effect and the coefficient estimate of globalisation
(KOF) are, respectively, and , its feedback
effect is only .
Table 8 displays the short-run and long-run effects from
the dynamic SDM, based on the MLIC data set and the
matrix, and with as the dependent variable. The
estimated short-run direct effect of the GINI variable on the
entrepreneurial activity is negative and statistically significant
at the 5% level but smaller than −1. This finding indicates
that entrepreneurial activity rate decreases with the level of
income inequality but more than proportionally. Alternatively,
a one standard deviation increase in income inequality in a
given country leads to a standard deviation increase in
the perceived levels of entrepreneurial activity in that country.
Besides, since the direct effect and the coefficient estimate of
income inequality are, respectively, and
, its feedback effect amounts to . Besides, the direct
effect of the GDP per capita variable on the entrepreneurial
activity rate is also negative and statistically significant.
Alternatively, a one standard deviation increase in GDP per
capita in a given country leads to a standard deviation
decrease in the perceived levels of entrepreneurial activity
in that country. Moreover, the impacts of both the squared
income inequality and the squared GDP per capita
on a country’s entrepreneurial activity rate are
positive and statistically significant but smaller than ; the
entrepreneurial activity rate increases with the levels of these
variables but less than proportionally.
Furthermore, based on the -statistics computed from a
set of 1000 simulated parameter values, four of the spillover
effects appear to be statistically significant in the short term,
but none in the long term. For example, the entrepreneurial
activity rate increases not only with the levels of GDP
per capita, squared GDP per capita and gross domestic
 Table 7. Results of the dynamic SDM, with as the dependent variable, HIC data and .
Short-term effects Long-term effects
Coefficients
Determinants Direct Indirect (Spillover) Total Direct Indirect (Spillover) Total
Estimate -value Estimate -value Estimate -value Estimate -value Estimate -value Estimate -value Estimate -value
−0.2374*** 0.0000 – – – – – – – – – – – –
0.8250*** 0.0000 – – – – – – – – – – – –
0.1251*** 0.0000 – – – – – – – – – – – –
−3.7870 0.3271 −2.6966 −0.6295 3.2066 0.7053 0.5100 0.0804 −16.2497 −0.0365 16.6970 0.0376 0.4474 0.0293
0.2967 0.4732 0.2022 0.4370 −0.3003 −0.5991 −0.0981 −0.1430 1.5364 0.0412 −1.6919 −0.0455 −0.1554 −0.0945
−0.3615 0.4636 −0.0558 −0.0614 0.7138 0.7935 0.6580 0.5555 2.1331 0.0261 −0.6810 −0.0083 1.4521 0.5221
−0.0097 0.8602 −0.0196 −0.7436 −0.0219 −0.8456 −0.0415 −1.3160 −0.1829 −0.0412 0.0863 0.0194 −0.0967 −1.2824
0.1643 0.2805 0.1198 0.8137 −0.1168 −0.7419 0.0030 0.0137 0.4605 0.0220 −0.4305 −0.0206 0.0300 0.0580
0.1195 0.3324 0.1210 1.0635 0.0097 0.0800 0.1307 1.6093 3.5715 0.0374 −3.2607 −0.0341 0.3108 1.5461
0.4097* 0.0795 0.4854*** 2.3685 0.2585 1.1734 0.7439*** 3.8902 2.9568 0.0594 −1.2067 −0.0242 1.7501*** 3.3987
0.0178 0.1611 0.0226 0.6801 0.0072 0.2229 0.0298 0.7692 −0.0939 −0.0092 0.1718 0.0168 0.0780 0.7790
−0.0020 0.9619 0.0009 0.0901 0.0072 0.6422 0.0081 0.6851 −0.1874 −0.0539 0.2069 0.0595 0.0194 0.6687
0.0786*** 0.0033 0.1024*** 3.0598 0.0693* 1.8937 0.1717*** 4.3411 0.3747 0.0556 0.0299 0.0044 0.4046*** 3.4520
0.2800 0.8485 – – – – – – – – – – – –
−0.0383 0.8976 – – – – – – – – – – – –
0.1924 0.6877 – – – – – – – – – – – –
−0.0110 0.2092 – – – – – – – – – – – –
−0.0051 0.8319 – – – – – – – – – – – –
0.0312* 0.0673 – – – – – – – – – – – –
0.1892*** 0.0004 – – – – – – – – – – – –
0.0078 0.8371 – – – – – – – – – – – –
0.0022 0.5815 – – – – – – – – – – – –
0.0436*** 0.0000 – – – – – – – – – – – –
R-squared 0.9813 – – – – – – – – – – – – –
0.0032 – – – – – – – – – – – – –
Log-likelihood 477.3558 – – – – – – – – – – – – –
0.7127 – – – – – – – – – – – – –

Wald test 31.4316*** 0.0000 – – – – – – – – – – – –

Wald test for dynamic spa-
168.9519*** 0.0000 – – – – – – – – – – – –
tial lag model
Wald test for dynamic spa-
216.4791*** 0.0000 – – – – – – – – – – – –
tial error model

Notes: Country fixed effects are included. *Significant at 10%; **significant at 5%; ***significant at 1%.

25
H. Ragoubi et al.: Entrepreneurship and income inequality...
 Table 8. Results of the dynamic SDM, with as the dependent variable, MLIC data and .

26
Short-term effects Long-term effects
Coefficients
Direct Indirect (Spillover) Total Direct Indirect (Spillover) Total
Determinants
Estimate -value Estimate -value Estimate -value Estimate -value Estimate -value Estimate -value Estimate -value
−0.2361*** 0.0000 – – – – – – – – – – – –

0.3877*** 0.0001 – – – – – – – – – – – –

0.0525** 0.0176 – – – – – – – – – – – –

−4.6003** 0.0199 −5.0986** −2.0830 2.7339 0.5903 −2.3647 −0.5797 −23.7207 −0.0782 20.0683 0.0678 −3.6524 −0.3733

0.6824*** 0.0060 0.6701** 2.2449 0.0844 0.1528 0.7546 1.4837 2.3801 0.0876 −1.3378 −0.0507 1.0422 0.9913

−0.6341* 0.0614 −0.8276** −2.0686 1.0787* 1.6718 0.2512 0.4886 −4.0925 −0.0761 4.3181 0.0821 0.2256 0.1557

0.0481*** 0.0000 0.0425*** 3.4895 0.0337* 1.7087 0.0761*** 5.2314 0.0546 0.0526 0.0467 0.0457 0.1014*** 3.6743

−0.0663 0.3029 0.0130 0.1435 −0.4533*** −2.8433 −0.4403*** −2.9714 0.8404 0.0488 −1.3967 −0.0825 −0.5562 −1.4165

0.0481 0.2905 0.0403 0.5735 0.0311 0.3719 0.0714 1.4745 0.0027 0.0007 0.0869 0.0232 0.0896 0.6776
Tékhne – Review of Applied Management Studies

−0.1571 0.2334 −0.2051 −1.0759 0.2729 1.1148 0.0677 0.4912 −0.9530 −0.0562 1.0304 0.0615 0.0774 0.2591

−0.0153 0.1685 −0.0261 −1.4269 0.062** 2.2517 0.0365 1.6179 −0.1259 −0.0623 0.1720 0.0862 0.0461 1.0571

−0.0238 0.1606 −0.0322 −1.1099 0.0456 0.9921 0.0134 0.4057 −0.1197 −0.0666 0.1368 0.0770 0.0171 0.3361

−0.0362 0.1122 −0.0456 −1.5115 0.0458 1.0740 0.0003 0.0085 −0.1681 −0.0630 0.1673 0.0635 −0.0008 −0.0145

−0.4612 0.8384 – – – – – – – – – – – –

0.1800 0.2074 – – – – – – – – – – – –

0.0957 0.3361 – – – – – – – – – – – –

0.0191*** 0.0000 – – – – – – – – – – – –

−0.1190*** 0.0002 – – – – – – – – – – – –

0.0175 0.1091 – – – – – – – – – – – –

0.0255 0.3598 – – – – – – – – – – – –

0.0106* 0.0927 – – – – – – – – – – – –

0.0046 0.3809 – – – – – – – – – – – –

0.0014 0.8725 – – – – – – – – – – – –
R-squared 0.9901 – – – – – – – – – – – – –
0.0046 – – – – – – – – – – – – –
Log-likelihood 407.9594 – – – – – – – – – – – – –
0.2041 – – – – – – – – – – – – –

Wald test 117.3938*** 0.0000 – – – – – – – – – – – –

Wald test for dynamic
92.3960*** 0.0000 – – – – – – – – – – – –
spatial lag model
Wald test for dynamic
102.9814*** 0.0000 – – – – – – – – – – – –
spatial error model

Notes: Country fixed effects are included. *Significant at 10%; **significant at 5%; ***significant at 1%.

expenditure on research and development in the own
country, but also, to a lesser extent, with that in neighbouring
countries. Alternatively, a one standard deviation increase
in both GDP per capita and gross domestic expenditure
on research and development variables in a given country
leads to, respectively, and standard deviation
increase in the perceived levels of entrepreneurial activity in
neighbouring countries. However, the interaction between
economic development and income inequality shows
significant negative spillover effect. According to this result,
the entrepreneurial activity rate decreases not only with the
level of the interaction variable in the own country but also
with that in neighbouring countries.
In line with the Bayesian results in Tables 5–8, the dynamic
SDM is an improvement over the dynamic SAR model: the
hypothesis about whether it can be simplified to the dynamic
SAR model can be rejected. This implies that the empirical
evidence in favour of the seven significant country spillover
effects in the short-term hinges strongly on the previous
finding that the spatial interaction among countries is not
driven only by the endogenous spatial lag. In addition, the
hypothesis about whether the dynamic SDM can be reduced
to the dynamic SEM can be rejected. Then, the dynamic SDM
is the best one and thus should be adopted.
5. Conclusion
This article outlines a dynamic spatial panel approach that
seeks to problematise and probe the ways in which income
inequality may contribute to entrepreneurship. Previous
empirical studies have examined the determinants of
entrepreneurship in the context of cross-section and panel
data. However, exploring spatial dependence as well as spatial
spillovers of entrepreneurship from a panel data standpoint is
seldom addressed in previous works. Ragoubi and El Harbi
(2018) were the first to use static spatial panel data models in
order to analyse the relationship between entrepreneurship
and income inequality. Unlike Ragoubi and El Harbi (2018),
this article investigates the dynamic linkage between
entrepreneurship and income inequality by considering both
spatial dependence and serial dynamics of entrepreneurial
activity as indicators of knowledge spillovers over space
and time. To the best of our knowledge, the present work
is also the first to use DSPD models to account for spatial
dependence and spatial spillovers in entrepreneurship and to
provide a clear picture of the dynamics that drive the linkage
between entrepreneurship and income inequality.
We empirically investigated the main determinants of
entrepreneurship while accounting for spatial externalities in
a dynamic context. More specifically, we have sought to gain
H. Ragoubi et al.: Entrepreneurship and income inequality...
a better understanding of the potential relationship between
entrepreneurship and income inequality. Using panel data
from 33 HIC and 39 MLIC for 2004−2014, we estimated
DSPD models of entrepreneurial activity in these two sets
of countries. In addition, we systematically searched for the
most suitable DSPD model as well as the best spatial weights
matrix. The empirical evidence in favour of the dynamic SDM
model is based on our application of a Bayesian comparison
approach (LeSage, 2014, 2015) to four potential spatial
models (SAR, SEM, SDM and SDEM). The dynamic SDM
produces global spillover effects, that is, countries adopt their
entrepreneurial activity to those of other countries, even if they
are not neighbours – so the spatial weight matrix is likely to be
sparse. Furthermore, our empirical results demonstrate that
entrepreneurship is a spatial and persistent phenomenon.
We provide evidence of significant spatial dependence and
intertemporal dynamics of entrepreneurial activity in both the
HIC and MLIC. The evidence is based on DSPD estimators
that take into account unobserved spatial unit and fixed effects
and control for relevant covariates of the focal countries and
their neighbours.
Using a DSPD modelling structure, our empirical work
provides strong support for the existence of an inverted
U-shaped relationship between entrepreneurship and income
inequality for only MLIC. In addition, we showed the existence of
an inverted U-shaped relationship between entrepreneurship
and economic development for MLIC. However, a significant
non-linear U-shaped relationship is found between new
business density and GDP per capita for HIC. We also
provided evidence for the existence of a significant negative
association between the interaction variable and new business
entry density for MLIC. Nevertheless, the interaction variable
positively influences the new business entry density for HIC.
These findings further support and validate our contention
that greater levels of income inequality are favourable for
entrepreneurship. The proposed explanations for the positive
linkage between entrepreneurship and income inequality
posit a direct effect of inequality on entrepreneurship. At the
broadest level, this article’s results validate those found by
Lippmann et al. (2005) and Ragoubi and El Harbi (2018).
The findings indicate that globalisation has significant
positive impacts on the entrepreneurial activity for both HIC and
MLIC. Furthermore, we found that both the competitiveness
and governance variables have significant positive impacts
on the entrepreneurial activity for HIC. Furthermore, we found
empirical evidence in favour of significant positive as well
as and negative short-run direct effects of income inequality
on the entrepreneurial activity for MLIC. Finally, the results
indicate the existence of significant negative short-run
spillover effects of income inequality on the entrepreneurial
activity for MLIC.
27
 Tékhne – Review of Applied Management Studies
Our empirical findings suggest that policymakers would be
well advised to consider the influence of income inequality if
they wish to influence job growth via entrepreneurship. Some
minimum level of income inequality is likely necessary to help
breed entrepreneurship. If the results of this study are causal, they
should raise a flag for policymakers. Income inequality is currently
on an upward trend, and as a result, our work would suggest
more entrepreneurship from MLIC and less entrepreneurship
from HIC. Policymakers interested in spurring job growth through
entrepreneurship might consider policies that directly address
the income inequality trend or that could increase opportunity
entrepreneurship and decrease necessity entrepreneurship.
Such policies might include increasing employment flexibility via
a workforce that is more highly educated and skilled, developing
a strong working class, structuring welfare programmes to
develop entrepreneurs, providing a social safety net that reduces
the risk of failure for potential entrepreneurs, and constructing the
tax code to encourage opportunity entrepreneurship.
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