The current literature has not made any connection between foreign aid and entrepreneurship. The purpose of this paper is to investigate if foreign aid influences entrepreneurial activities in a recipient country.
Using system generalized method of moments (Blundell and Bond, 1998) estimators with a panel of 38 recipient countries during 2005–2014, the author tests for 33 measures of entrepreneurial activities.
This paper finds that aggregate aid tends to only boost necessity-driven early-stage entrepreneurship and benefit low-income entrepreneurs. Aid to infrastructure promotes entrepreneurship driven by both opportunity and necessity motivations. It also incentivizes competition with homogeneous products. Additionally, evidence suggests that both aggregate aid and infrastructural aid discourage adoption of state-of-the-art technologies, raise business failure rate and are associated more with necessity-driven early-stage entrepreneurial activities for females.
This is the first research examining “aid and entrepreneurship” relation.
