ENTREPRENEURSHIP AND ECONOMIC GROWTH
Description
This study was carried out to analyze the relationship between Economic growth and entrepreneurship in Rwanda with the use of the production function to find out the short-term relationship and long-term joint relationship, the causality effect among the variables of the study and proofing the U-shaped relationships between independent entrepreneurs and economic growth. By employing a time series analysis of data imported to the E-views 12, for further analysis from the excel sheet of the World Bank data set of 1991 to 2021 quarterly data of 124 observations. Therefore, the autoregressive distributed lag (ARDL) model is employed to cater the relationship of the determinants of production function which are Capital measured by Gross capital formation (percentage of GDP) (CAP), Entrepreneurship indicated by Self-employed (from total employment) (LENT) and Labor force (LAB) to explain the growth with Real GDP measured in constant year 2015 (GDP) indicator. In fact, the truth shows that the hypothesis of a joint positive long-run relationship of Entrepreneurship to growth is strongly significant. Whereby it has a weak negative midterm effect, by assuming other facts as constant, the 1 percent increase (inelastic) in Entrepreneurship of 1 previous period is associated with a 0.498 increase in growth and a 1 percent increase in Entrepreneurship in the fifth previous period is associated with a 0.528 increase in growth with meaningless negative midterm fluctuation. This shows, that both the long-run and short-run elasticities supports the validity of the U-shaped relationship between economic growth and the rate of entrepreneurship development. the analysis also employed the causality method, and the evidence from the Granger-causality shows the unidirectional causality between Entrepreneurship and Growth, Capital and Growth, and Entrepreneurship and Capital. Which have policy implications for Rwanda, that emphasizing on the joint increase of factors of production with entrepreneurship will raise output with short-term fluctuation. Finally, we conclude that the entrepreneurship indicated by self-employment (independent entrepreneur), jointly with other factors of growth increases output production in the short term and with the limitation of midterm decrease which requires policies to transform start-ups into highly growing firms that leads to effective employment creation, poverty reduction, increase standard of living, increased level of income, and human development. It is also noteworthy that the Rwandan Government promotes entrepreneurship development.
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To investigate the effect of entrepreneurship on economic growth, the quarterly data were ana-lyzed to increase the frequency in consideration of volatility in data, whereby the total of 124 quarterly observations data span from 1991 to 2021 which is the time series data are greater than 25 observations allowed to be analyzed, (Hyndman & Kostenko, 2007). The data were extracted from the World Bank database for analysis of the production growth model in EViews 12. The autoregressive distributed lag (ARDL) model employed to cater the relationship of the determinants of production function which are Capital measured by Gross capital formation (percentage of GDP) (CAP), Entrepreneurship indicated by Self-employed (from total employment) (LENT) and Labor force (LAB) to explain the growth with Real GDP measured in constant year 2015 (GDP) indicator The growth model with three independent variables was based on, that is capital estimated by proxy of Gross capital formation percentage of GDP (formerly gross domestic investment) consists of out-lays on additions to the fixed assets of the economy plus net changes in the level of inventories. Fixed assets include land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential dwellings, and commercial and industrial buildings. Invento-ries are stocks of goods held by firms to meet temporary or unexpected fluctuations in produc-tion or sales, and work in progress, net acquisitions of valuables are also considered capital for-mation. Entrepreneurship estimated by Self-employe; Self-employed workers are those workers who, working on their own account or with one or a few partners or in cooperative, hold the type of jobs defined as a "self-employment jobs." That is jobs where the remuneration is directly depend-ent upon the profits derived from the goods and services produced. Self-employed workers in-clude four sub-categories of employers, own-account workers, members of producers' coopera-tives, and contributing family workers. Labor (total population employed as labor in various economic sectors), the proportion of the population ages 15 and older that is economically active: all people who supply labor to produce goods and services during a specified period. And economic growth estimated by proxy of real GDP, GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in constant 2015 Rwandan Franc.