Entrepreneurship and economic growth: the mediation role of access to finance

Abstract

The purpose of this paper is to examine the mediating role of finance in the relationship between economic growth and entrepreneurship in a sample of 17 OIC countries. We developed a model where banking finance as a proxy for Access to finance mediates the relationship between the total early stage entrepreneurship (TEA) as a proxy for entrepreneurship and economic growth. Correlation, Baron and Kenny approach (causal steps approach) and PROCESS Macro (normal test theory) developed by Hayes were used to find out the direct and indirect effects of financing between entrepreneurship and economic growth. The bootstrap mediation results indicated that finance was a significant predictor of entrepreneurship and entrepreneurship was a significant predictor of economic growth. These findings support the mediation hypothesis. In addition, findings showed that there is a positive relation between entrepreneurship and economic growth and a positive relation between finance and economic growth in OIC countries. Furthermore, the findings of this study indicate that the total association between entrepreneurship and economic growth in OIC countries is not only direct, but also that entrepreneurship contributes to levels of economic growth through the increased levels of finance. As a result, countries with higher levels of access to finance tended to experience entrepreneurship at higher levels, which in turn contributed to the emergence of increased levels of economic growth. The results indicated that the direct effect of entrepreneurship on the economic growth remained significant when controlling for finance, thus suggesting partial mediation. In other words, finance only mediates part of the effect of entrepreneurship on economic growth.