Entrepreneurship and income inequality: a quantile approach from global panel data

Abstract

This paper explores the relationship between entrepreneurship and income inequality, drawing from unbalanced panel data from 104 countries between 2001 and 2023, sourced from the Global Entrepreneurship Monitor, the Standardized World Income Inequality Database, and the World Bank. Employing system GMM and panel quantile regression (MM-QR), it fills crucial gaps in the literature, such as cross-country heterogeneity using panel data, endogeneity, and the varying effects of entrepreneurship across different quantiles of the income inequality distribution. The findings reveal that entrepreneurship reduces income inequality, with the effect being most pronounced at lower quantiles of the income inequality distribution. Moreover, women's entrepreneurship emerges as a powerful force in reducing inequality, with a more pronounced effect than men's entrepreneurship, particularly at the higher quantiles where income inequalities are most persistent. While opportunity-driven entrepreneurship narrows income inequality more than necessity-driven, it shows no distinct impact on income inequality quantiles. These findings challenge the predominant literature suggesting that entrepreneurship worsens income inequality and underscore the potential of entrepreneurship to empower marginalized groups, foster economic mobility, and promote social equity. Moreover, they provide critical insights for policymakers, emphasizing the need to promote inclusive entrepreneurial ecosystems necessary for equitable economic growth.