Self-employment and economic growth in developing countries: is more self-employment better?

Abstract

Purpose

The study aims to examine the non-linear relationship between self-employment and economic growth (growth) in the context of developing countries.

Design/methodology/approach

Data from a sample of 83 developing countries covering a period 2002–2015 is used. The empirical analysis is based on the dynamic panel data estimation, and the results are estimated using the two-step system GMM technique. Non-linearity between self-employment and growth is validated using Sasabuchi (1980) and Lind and Mehlum (2010) (SLM) test.

Findings

The empirical analysis suggests a non-linear and a U-shaped relationship between self-employment and growth, confirmed by the SLM test. The threshold levels for total self-employment, female self-employment and male self-employment are 57.49%, 58.86 and 55.81%. The findings are also robust to alternate estimation technique and alternate measure of the dependent variable.

Practical implications

Policy implications of the findings include the need for policies that foster and channel self-employment properly as the higher level of self-employment is found to benefit growth.

Originality/value

This study is the first attempt to examine the empirical relationship between self-employment and growth. As such, it makes a novel contribution to the extant literature on the relationship between the two variables.

Citation

Yerrabati, S. (2022), "Self-employment and economic growth in developing countries: is more self-employment better?", Journal of Economic Studies, Vol. 49 No. 2, pp. 315-329. https://doi.org/10.1108/JES-08-2020-0419