Entrepreneurial orientation (EO): Measurement and policy implications of entrepreneurship at the macroeconomic level

Although entrepreneurship has been deemed crucial to economic growth, empirical evidence on the entrepreneurship-growth nexus is inconclusive. A key reason for these mixed findings could be that entrepreneurship has been erroneously specified as entry density; whereas a more accurate characterisation of entrepreneurship at the macro-level is aggregated EO. Using data of 93 countries over the period 1980-2008, we compute EO as an aggregate level, unidimensional, second-order construct with three indicators that covary: risk-taking, innovativeness and proactiveness. Importantly, unlike other proxies of entrepreneurship, the level of EO and particularly its increment, positively and robustly correlate with economic growth, across all levels of development. The policy derivative of our findings seem clear and encouraging: governments, who wish to promote entrepreneurship and its attendant economic growth, should revisit their emphasis on promoting policies that erroneously encourage the entry of replicative mom and pop shops and, instead, consider fostering (1) entry of high EO firms, and (2) those with lofty EO behaviour amongst existing firms.