Out with the Old or Out with the New: The Uncertain Role of Entrepreneurship in Developing Countries in the Post-COVID-19 Context

Abstract

The promotion of policies and initiatives that support job creation through entrepreneurship in developing countries is at the heart of the 2030 sustainable development goals (SDG) agenda, and, in particular, SDG 8 and 9. Yet, entrepreneurship remains an abstract concept difficult to define and comprehend, and the literature on entrepreneurship has been developed mostly in a developed country context. In the current global context, dominated by the dramatic impact of the COVID-19 pandemic, the relevant policies to be adopted by developing countries to face the socioeconomic consequences of the pandemic must be identified and analyzed. One of the main concerns of these policies is unemployment. The simultaneous supply and demand shocks caused by the pandemic have raised calls for an unprecedented level of public intervention in both developing and developed countries to prevent massive unemployment and chains of bankruptcies. The objective of this paper is to study the role of entrepreneurship in job preservation or job creation at the macroeconomic level. After reviewing different taxonomies of entrepreneurship and discussing motivations of entrepreneurs in a developing country context, the fundamental relationship between entrepreneurship, job creation, and macroeconomic performance in developing countries in both the pre- and post-COVID-19 contexts is analyzed. Using panel data for a sample of 24 countries members of the Organization of Islamic Cooperation (OIC) across the period 2009-2018, the paper demonstrates a U-shaped relationship between entrepreneurship and the level of economic development of nations, which translates into a negative correlation between economic growth and entrepreneurial dynamism for developing countries with per capita income below a certain limit. This proves that different phases of the economic cycle require different policies and promotion of entrepreneurship should therefore be adjusted to the economic conditions of each country.