Economic Development and Business Ownership: An Analysis Using Data of 23 OECD Countries in the Period 1976–1996

In the present paper we address the relationship between business ownership and economic development. We will focus upon three issues. First, how is the equilibrium rate of business ownership related to the stage of economic development? Second, what is the speed of convergence towards the equilibrium rate when the rate of business ownership is out-of-equilibrium? Third, to what extent does deviating from the equilibrium rate of business ownership hamper economic growth? Hypotheses concerning all three issues are formulated in the framework of a new two-equation model. We find confirmation for the hypothesized economic growth penalty on deviations from the equilibrium rate of business ownership using a data panel of 23 OECD countries. An important policy implication of our exercises is that low barriers to entry and exit of businesses are necessary conditions for the equilibrium seeking mechanisms that are vital for a sound economic development.