Does Higher Entrepreneurial Activity Correlate with Higher Level of Growth? Evidence from Thailand

Abstract

Schumpeter (1934) argues that entrepreneurship plays a vital role in economic growth and development of a country. Entrepreneurs, characterised by their attitudes to be imaginative, innovative, authoritative, and risk-taking, drive innovation and technological change in the economy, which are crucial in economic growth and development. In this regard, the Global Entrepreneurship Monitor (GEM) Report 2007 records that Thailand has a remarkably high entrepreneurial activity, even if compared to Japan or the United States. Paradoxically, this high entrepreneurial activity does not translate into superior economic growth. In fact, Thailand’s economic growth does not really show a notable difference from her neighbouring countries in the Southeast Asia, such as Malaysia, Indonesia, the Philippines, Cambodia and Vietnam. This raises an interesting question that needs careful scrutiny: does entrepreneurial activity really make an impact on economic growth of Thailand? While there are many empirical studies carried out to investigate the determinants of growth in Thailand, an examination on the impact of entrepreneurship is still very much lacking. Thus, there is a need to fill up this gap and perhaps provide an insight and shed some light on this issue. Therefore, the aim of this paper is to study the impact of entrepreneurship on economic growth of Thailand. Towards this ends, the analysis on the impact of entrepreneurship in economic growth is carried out by performing regression analysis. However, unlike most previous growth studies on Thailand that used aggregate data, this study uses data that are disaggregated into 76 provinces in Thailand, obtained from official government documents. Our regression model is based on growth accounting framework, and is estimated by three different methods – pooled OLS, random effects and fixed effects. Based on the first two methods, our results suggest that entrepreneurship, measured as the number of new business establishment, is significant to explain variation in Thailand’s economic growth. However, the result of the Hausman test necessitates a re-estimation of the model by the fixed effects method. Using the fixed effects methods, our results indicate that entrepreneurship is insignificant. We take this result as evidence that entrepreneurship plays little or no role in economic growth of Thailand.