Macroeconomic Factors and Birth of New Businesses in Developing Countries: Evidence from a Dynamic System GMM Approach

Abstract

This paper aims to discuss and determine the nature of relationship between the birth of new enterprises and macroeconomic factors in using a panel data of 73 developing countries for the period of 2006-2018. The study used panel corrected standard error approach (PCSE) and system generalized method of moments (GMM) approach. The main conclusions revealed that foremost economic growth, translated in terms of real gross domestic product per capita, and in terms of variation in demand, has proved to be a positive determining factor in the creation of enterprises. Furthermore, the population growth rate and inflation, while contributing positively to the creation of new enterprises, did not produce the effect that would have been expected, given the relatively low elasticity. Addition, the results also indicate that unemployment rate and employment vulnerability have small negative effects on new firms’ creation.