An empirical investigation of country level efficiency and national systems of entrepreneurship using Data Envelopment Analysis (DEA) and the TOBIT model

Nishat Tasnim,Munshi Naser Ibne Afzal

doi:10.1186/s40497-018-0138-y

Abstract

The goal of this paper is to investigate effects of national systems of entrepreneurship on the country level efficiency, on addition we find what macro factors affect efficiency as well. From a comprehensive database of 59 countries using GEM, WDI, WCI for 2018 using data envelopment analysis (DEA) we find the results support the theoretical grounding of Global Entrepreneurship Index (GEI) hypothesis. The GEI methodology has been designed to capture the core features of the National Systems of Entrepreneurship theory. It approaches country-level entrepreneurship as a systemic phenomenon, which is driven by the interaction between individual-level actions and country-level framework conditions. While discussing country level framework, we have depicted key macroeconomic indicators in the analysis along with GEI index. The DEA analysis followed this framework to assess the performance of the study countries. Though inefficiency widely varies across countries, while the group of factor-driven countries is the most inefficient while innovation-driven economies are the most efficient ones. Subsequently, we apply the Tobit model to explain efficiency. Based on the Tobit regression model, the DEA VRS technical efficient score could be improved through GDP per capita and social capital. From policy perspective, to promote economic growth policy makers should consider national systems of entrepreneurship as their priority so that entrepreneurs can allocate resources in the economy effectively.

Highlights

The simple correlation between research and development (R&D) expenditure and gross domestic product (GDP) growth reveals no systematic relationship of country level knowledge diffusion
The results indicate that inclusion of the national system of entrepreneurship to the model contributes to explain efficiency differences significantly
We find that inefficiency is greater in less developed countries and we cannot come to a clear conclusion about the corruption ranking and the efficiency of the countries while explaining National Entrepreneurship System (NES)

Summary

Introduction

The simple correlation between research and development (R&D) expenditure and gross domestic product (GDP) growth reveals no systematic relationship of country level knowledge diffusion. Both Solow and new growth theory seems to offer no adequate explanation as to why countries with large R&D stocks grew slowly (such as Sweden), while other countries less endowed with knowledge—such as Denmark—experienced persistent and high growth rates (Barro, 1991). We believe that the ambiguous empirical support for endogenous growth models raise the issue of entrepreneurship concept as the key element of discussion in modern production function. To address this gap and to provide a coherent theoretical grounding for the Global Entrepreneurship Index (GEI). Further Farrell (1957) developed the thought and, according to him efficiency is denoted by a distance function, which captures efficiency differences that is initiated in factors other than differences in technology

Objectives

Methods

Findings

Discussion

Conclusion