The Roles of Entrepreneurship on Regional Economic Growth in Indonesia

Abstract

New endogenous growth theory introduces how investment in knowledge and human capital contribute to economic growth through spillover of knowledge. However, the theory has limitation because it does not explain the cause and the mechanism of how knowledge spillover occurs. Accordingly, by employing panel data of 33 provinces in Indonesia over the period of 2008–2013 and fixed effect method, this paper aims to investigate the roles of entrepreneurship on regional economic growth in Indonesia. The study applies different approaches to measure the entrepreneurial activities based on GEM categories, namely, self-employment rate and business ownership rate as indicators of entrepreneurial productivity. Furthermore, a more specific analysis is conducted by identifying entrepreneurial activities into formal sector and informal sector. The estimation result indicates that entrepreneurial productivity plays a significant role on regional economic growth in Indonesia. Moreover, entrepreneurial activities in different sectors give different contributions on the economic growth.