Painting the whole picture: Connecting new business formation, innovative entrepreneurship, and entrepreneurial ecosystems with unemployment

Abstract

The connection between business formation and unemployment has been a topic of discussion in the scientific literature for decades. As time progressed, new insights emerged from the increased utilization of methodological complexities. Nonetheless, a gap remains in how innovative entrepreneurs respond to changes in unemployment and vice versa. Similarly, there is scarce evidence of the relationship between entrepreneurial ecosystems and unemployment. To resolve these gaps, data is collected on a regional level of analysis, based on which the results of three panel vector autoregression models reveal no reverse causality between new business formation, innovative entrepreneurship, and entrepreneurial ecosystems on the one hand and unemployment on the other. They do, however, support two direct relations. One, new business formation negatively impacts unemployment. Second, unemployment is a negative antecedent of innovative entrepreneurship. Unexpectedly, the entrepreneurial ecosystem’s autoregressive coefficient is negative. These findings are situated within robust explanatory frameworks. Accordingly, the outcomes of this study can be utilized by a broad and diverse set of regional policymakers in devising their strategies to achieve regional development.