Relationship between business ownerships, unemployment and economic growth in Singapore.

Abstract

This paper explores the dynamic causal relationships between entrepreneurship and the various economic conditions: unemployment rate, economic growth and per capita GDP in Singapore from 1990 to 2009. The first causality direction, known as the “refugee” effect, identifies unemployment as a key factor to self-employment. The other causality direction reveals the “Schumpeter” effect of enterprise formation; powering economic growth and bringing down unemployment. In examining this causal relationship, we perform the Granger Causality test by estimating Vector Autoregression (VAR) models as suggested in Audretsch et al (2001). Formation of business and formation of companies are used to proxy entrepreneurship. The empirical evidence suggests that in general, the enterprises formed in Singapore bring down unemployment rates. However, a thriving economy and higher societal wealth do not encourage enterprise formation. Pull effect of the economy is weak. We argue that this is partly attributed to the risk adverse culture in Singapore despite her favourable business climate.