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Innovation, entrepreneurship and economic growth

Miguel-Ángel Galindo Applied Economics, University of Castilla-La Mancha, Ciudad Real, Spain, and

Marı́a-Teresa Méndez-Picazo Finance and Accounting, University Complutense of Madrid, Madrid, Spain

Abstract

Purpose – The main aim of this paper is to analyze the relationship between innovation and economic growth, following the Schumpeter approach, considering the entrepreneurship activity.

Design/methodology/approach – Several hypotheses are tested considering three equations, for the case of ten developed countries. To estimate the equations, generalized least square (GLS)-cross-section weights and panel least squares methodologies for the period 2001-2009 have been used.

Findings – Innovation plays a central role in the economic growth process and the entrepreneur is the vehicle to introduce the new technologies to improve the firms’ activity and to obtain higher profits. It is also necessary to include in this process other variables: social climate and the role of institutions.

Practical implications – Some measures can design from these results to improve innovation and entrepreneurship activity, which would have positive effects on economic growth.

Originality/value – Schumpeterian approach is developed for this analysis, and empirical estimations are carried out to test hypotheses on economic growth and innovation, considering not only the traditional quantitative variables but also qualitative ones, having a wider view about the process. Drucker statement on innovation effects on entrepreneurship activity is also tested.

Keywords Innovation, Entrepreneurship, Economic growth, Schumpeter, Drucker, Social climate, Entrepreneurialism

Paper type Research paper

1. Introduction Innovation is not a new phenomenon in the evolution of society, but it is a process inherent to human development. Ancient societies searched those elements that not only increase those means of subsistence obtained from natural resources, but also reduce the effort necessary to carry out their work and to facilitate the transport of individuals and products. With the introduction of more sophisticated innovations, the benefits of these innovations were considered as well as the negative effects on society, on employment and on human behavior.

From the economic point-of-view, economists have employed different terms when they speak about innovation. Traditionally, innovation has been included in the capital accumulation concept. When classical economists spoke about market behavior and mechanical advances, they included innovation. They showed the great relevance of innovation as an essential element of economic progress. For example, Adam Smith (1776) stated that the division of labor is one key element of the wealth of nations, an element that could be encouraged through wider markets. One avenue for firms to increase the markets for their products is to introduce innovations in the productive process to produce more competitive products.

The current issue and full text archive of this journal is available at

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Management Decision Vol. 51 No. 3, 2013

pp. 501-514 q Emerald Group Publishing Limited

0025-1747 DOI 10.1108/00251741311309625

Modern economic growth analyses have also stressed the relevance of innovation. Firms can achieve greater levels of success due to the globalization process and innovation can make it possible to take advantage of the positive effects of such a process. Technological diffusion and catch-up process are some of the main aspects that have been considered in modern economic growth literature.

However, it is also necessary to take into consideration those persons that introduce the innovations in the productive process. Someone has to avoid unwise risk while making the decision to incorporate new technology in the firm, considering the positive and negative effects of the decision. This person is the entrepreneur, and his activity has a positive effect on economic growth.

The main goal of this paper is to analyze the relationship between innovation, entrepreneurship and economic growth from theoretical and empirical points-of-view, following the Schumpeter approach as some part of the existing literature has done. However, in this paper other factors are considered, primarily the role of monetary institutions and the “social climate.” Both play an important role in the process because financial institutions make it possible for entrepreneurships to obtain the necessary financial resources, while society must support their efforts to carry out their activity. But also a new perspective is considered in the analysis, a circular virtuous process. As the traditional literature states, entrepreneurship promotes innovation and innovations promote economic growth. With this additional facet, it is also consider that the economic growth attained would stimulate further innovation and the latter would also encourage entrepreneurial activity.

To carry out this goal, in section 2 some general aspects related to innovation and entrepreneurship are considered. In section 3, both factors are related to economic growth taking into account the Schumpeterian approach. In section 4, the empirical analysis is carried out for the case of 10 countries, testing the hypotheses considered in the analysis. Section 5 presents the main conclusions.

2. Innovation and entrepreneurship When innovation is included in the analysis, it is important to distinguish between innovation and invention, as Fagerberg (2006, pp. 4-5) states. From his point-of-view (Fagerberg, 2006, p. 4), “Invention is the first occurrence of an idea for a new product or process, while innovation is the first attempt to carry it out into practice.” As Fagerberg shows, both are closely linked, and it is very difficult to distinguish one from another. But in many cases, there is a considerable lag between the two. However – and this is very important from our perspective – a main difference between invention and innovation is that the former may be carried out anywhere, while innovation occurs mainly in firms that need to combine several different kinds of capabilities, knowledge, resources and skills (Fagerberg, 2006, p. 5). In this sense, it is necessary that a person, who is an innovator or an entrepreneur in Schumpeterian terms, carry out all of these tasks. For this reason it is important to introduce in the analysis the role played by the entrepreneur and to determine those elements or factors that would have any effect on him (Oakley, 1990; Aghion and Howitt, 1998).

In general terms, when the entrepreneurship factor is considered the economic agent’s behavior must be taken into account. This is not an occupation but an activity, and it must be considered the different circumstances and aspects of a person and the role of uncertainty and obstacles inherent in the business creation process (Devece et al.,

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2011; Giacomin et al., 2011; Nielsen and Lassen, 2012; Bettiol et al., 2012). The entrepreneurship factor also includes persons that search information or ideas about efficient production processes, as well as new organizational forms.

Taking into account these ideas, different types of entrepreneurships can be considered (Nissan et al., 2011). First is the innovator, following Schumpeter’s (1911, 1950) thesis. Schumpeter considers that entrepreneurship activity implies innovation in the introduction of a new product, organization or process, generating a destruction process. The innovator creates new industries and for this reason he causes relevant structural changes in the economy. This is the type of entrepreneurship that it is considered in the analysis carried out in this paper. Second is the entrepreneur that takes advantage of profit opportunities (Kirzner, 1973, 1999). Kirzner agrees with Schumpeter that an entrepreneur tries to take advantage of profit opportunities, but, contrary to Schumpeter’s view, Kirzner says the entrepreneur learns from past mistakes and tries to correct them, driving the market toward equilibrium. Third, uncertainty element must be taken into account (Knight, 1921). Knight distinguished between risk and uncertainty, believing uncertainty to be an important factor considered by entrepreneurs. They have to take it into account and adopt decisions in an uncertain world. Their profits are a reward for bearing this uncertainty. And fourth, productive and non-productive entrepreneurships must be also considered (Baumol, 1990). From Baumol’s point-of-view, entrepreneurs are creative and ingenious, searching for the most effective and appropriate means to increase their wealth, power and prestige. The existing environment around them has an important influence on their decisions (Farinós et al., 2011).

On the other hand, when the relevance of innovation on economic process is considered, it is necessary to consider its effects on economic growth. There is a huge literature that analyzes this aspect, and in some cases negative aspects have been considered. For example, many classical authors considered innovation as a factor that has indirect effects on economic growth through its effects on those variables that have a direct effect on growth, such as division of labor. Or, as J.B. Say (1803) stated, through its effects on markets, due to the fact that markets are capable of adjusting to new situations and, thus, innovations would not create problems. However, other authors showed negative effects from the innovation process. James Steuart (1767) stated that mechanization would not have a positive effect on price reduction, but would have a negative effect on employment. And Marx was not optimistic about the innovation effects on workers.

Finally, it is also interesting to take into account the Drucker (1998) perspective. Drucker points out that innovation is at the heart of entrepreneurship activity and it is due to innovation that many entrepreneurships carry out their activity. From this perspective, then, innovation would promote their activity, creating a feedback effect. That is, entrepreneurships innovate and the innovations stimulate other entrepreneurs to carry out their activity (Cáceres et al., 2011; De Cleyn and Braet, 2012; Zortea-Johnston et al., 2012).

3. Innovations and economic growth: the Schumpeter approach From a modern perspective, it is interesting to take into account Schumpeter’s (1911, 1947) model that includes innovation and entrepreneurships’ behavior and their relevance for economic growth. In his article entitled, “Theoretical problems of

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economic growth” (Schumpeter, 1947), he stated that the specialized literature has recognized a set of factors that encourage economic growth, the most relevant being the social organization, the institutions, the technology. . . (Schumpeter, 1947, pp. 2-3). However, from his point-of-view, all these factors are not enough to explain the economic growth process, because “economic growth is not autonomous, being dependent on factors outside of itself, and since these factors are many, no one-factor theory can ever be satisfactory” (Schumpeter, 1947, p. 4). However, at the end of the article, he concludes that:

[. . .] since creative response means, in the economic sphere, simply the combination of existing productive resources in new ways or for new purposes, and since this function defines the economic type that we call the entrepreneur, we may reformulate the above suggestions by saying that we should recognize the importance of, and systematically inquire into, entrepreneurship as a factor of economic growth (Schumpeter, 1947, p. 8).

From his point-of-view, the entrepreneur is the leader that “leads” the means of production into new channels (Schumpeter, 1911, p. 89) and not necessarily “. . .a genius or benefactor to humanity” (Schumpeter, 1911, p. 90 ff). The entrepreneur’s decisions to innovate depend on some expectation of obtaining a profit. However, there is a circular process because innovation could bring about an improvement of the product, giving the entrepreneur a better position in the market, which could lead to higher profits that would encourage him to introduce new innovations. All this process would have a positive effect on economic growth (Galindo et al., 2012).

On the other hand, this behavior would have also an indirect process called “creative destruction.” Schumpeter considers that entrepreneurship activity implies the innovation in the introduction of a new product, organization or process, generating a destruction process. The entrepreneur creates new industries and for this reason he causes relevant structural changes in the economy. Entrepreneurs cannot be considered as inventors because they adopt the inventions created by others. When an entrepreneur gives up innovation, he lessens his entrepreneurial position. For this reason, the Schumpeterian vision implies that the entrepreneur is an innovator that destroys the existing structures. From a more modern and general point-of-view, entrepreneurs create new firms but that does not imply that they must create new products. One can generate a new business without being an innovator in the Schumpeterian sense and assimilate the technological advances.

It is also important to take into account that in the Schumpeterian perspective, profit is an income derived from a monopoly power position (Oakley, 1990, p. 139), and this position is obtained through the innovation process. Therefore, due to innovation, firms obtain higher profits that would stimulate to entrepreneur to introduce new innovations, to increase the firm’s activity, having positive effects on economic growth and employment.

For this reason, the innovation process is growth and profit enhancing. In this sense, it is relevant to take into account the necessity to finance the innovation process, with savings playing an important role in the process. Entrepreneurs have to obtain those financial resources that they need to develop their activity, including innovation. So, it is important to have efficient credit institutions that facilitate the transmission of savings to investment. And central banks must supply the necessary resources to finance such activity if savings are scarce in the economy. Therefore, the main motivation of the principal monetary institution, the Central Bank, must be that small

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businesses generate benefits to society and foster innovation, and to achieve this goal it is necessary to supply the financial resources that entrepreneurs need. So, monetary policy plays a principal role in this process. From this perspective, an increase of money supply would be considered as a bet that central banks make in favor of small and medium-sized enterprises, to accelerate the innovation process. It would have a positive effect on society as a whole. However, it is also necessary to consider the negative effect of this kind of policy. Such an increase would result in higher prices and the consequence would be that the goods and services could be less competitive and the firms could lose position in the marketplace. For this reason, it could be more convenient to reduce the money supply and increase the incentive to save, increasing the resources available to be provided to entrepreneurships. The only problem in this case is the increase in interest rates. If the level is too high, it could discourage entrepreneurs from investing.

However, Schumpeter also considered a second factor that would encourage innovation. He focused on the social environment because there usually are reactions by social groups to entrepreneurial activity, including the innovation process. Schumpeter considers the existence of legal or political impediments, the culture, and possibly the rule of law and the role of institutions (Bahmani et al., 2012). On the other hand, Schumpeter states that it would be possible to find some social opposition to the innovation process, in which case the entrepreneur would find it difficult to find the necessary cooperation. While such resistance was more relevant in the beginnings of capitalism, it is still existant nowadays (Schumpeter, 1911, p. 87).

Therefore, following the ideas shown above, entrepreneurship activity plays a relevant role in the economic process. And for this reason, it is necessary to create an adequate environment or “social climate” to encourage entrepreneurial activity and to facilitate the introduction of innovations. However, Schumpeter is not sufficiently clear in designing the variables that affect such a “social climate.” In general terms, they would include the democracy level and, especially, income distribution. Income inequality reduction (a better distribution of the results from the innovation process) would reduce the social stress and the opposition to innovation.

4. Empirical analysis Taking into account the previous analysis, an empirical analysis is developed for the case of ten countries: Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Spain, Sweden and the USA for the period 2001-2009.

The hypotheses to be tested are:

H1. Innovations have positive effects on economic growth.

H2. Entrepreneurship has a positive effect on innovations.

H3. Education has positive effects on innovations.

H4. Economic growth has a positive effect on innovation.

H5. The actions of central banks have a positive effect on entrepreneurship.

H6. “Social climate” has a positive effect on entrepreneurship activity.

H7. Innovations have a positive effect on entrepreneurship.

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To test these hypotheses, it has been considered three equations described below being the general specification of panel data with effects:

Yit ¼ ait þ XK

k¼1

bkitXkit þ Uit

where i denotes the countries and t the time periods. ait is a parameter that shows the specific effects of each cross-section, in this case, of each country. This parameter is constant on time. Uit collects the effects of omitted variables that are particular to considered cross-section and period.

Three equations have been used to test the hypotheses. Equations (1) and (3) have been estimated with Generalized Least Square (GLS)-Cross-section weights. This method permits a feasible GLS specification assuming the presence of cross-section heteroskedasticity (Wooldridge, 2008). In addition, in theses estimations, this method increases the value of DW in comparison of result with Panel Least Squares. However, equation (2) is estimated with Panel Least Squares.

The equations to be considered are:

ln yð Þit¼ b0 þ b1 lnðInÞit þ b2ðKHUÞit þ b3 lnðIÞit þ 1it ð1Þ

where i is country, i ¼ 1; . . . ; 10; and “t” is year, t ¼ 2001; . . . ; 2009. y is Gross Domestic Product (GDP) measured in millions of US dollars (USD). In is innovation which is measured by the proxy, patents, measured in number of patents issued. I is private investment measured in millions of USD. “KHU” is human capital measured in millions of USD. The source of the data is the World Bank. The signs expected for all of these variables are positive:

ln Inð Þit¼ b4 þ b5 KHUð Þitþb6 lnðfÞit þ b7ð yÞit þ 1it ð2Þ

Being “f” is entrepreneurship which is measured by the proxy, total entrepreneurship activity (TEA), created by global entrepreneurship monitor (GEM). Every year GEM carries on a research program that estimates the national entrepreneurial activity in each country that participates in the survey, thereby estimating the TEA index. The expected signs are positive:

ln Fð Þit¼ b8 þ b9 Inð Þitþb10 lnðlÞit þ b11 lnðmsÞit þ 1it ð3Þ

where “l” is income distribution as measured by the Gini coefficient, and “ms” is money supply, showing the central banks role.

H1. Innovations have positive effects on economic growth This hypothesis is tested by equation (1) and the results are shown in Tables I and II. The signs for all three explanatory variables are both expected and significant. Therefore, innovation has positive effects on economic growth (Gomulka, 1971; Aghion and Howitt, 1992, 1998; Acs et al., 2004, 2005; Braunerhjelm, 2008; Audretsch et al., 2008; Carlsson et al., 2009; Braunerhjelm et al., 2010; among others for empirical support). So, all the activities that encourage the innovation process would also encourage economic growth as has been started previously.

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H2. Entrepreneurship has a positive effect on innovations This hypothesis is tested in Tables III-VI. In previous sections, it has been indicated that entrepreneurship plays an important role in the innovation process (Aizpurúa et al., 2011; Benavides and Suanes, 2011), introducing new production forms and destroying existing structures. Tables III-VI shows a positive sign and significant showing the positive relationship between both variables.

H3. Education has positive effects on innovations As well as in the previous case, this hypothesis is tested in Tables III-VI. Education is considered in the human capital (KHU) variable, which plays an essential role

Variable Coefficient Std. error t-statistic Prob.

C 2.432118 0.284919 8.536178 0.0000 LOG(I) 0.279346 0.038026 7.346152 0.0000 LOG(In(-1)) 0.056497 0.019559 2.888474 0.0050 LOG(KHU) 0.702217 0.043926 15.98653 0.0000

Notes: Dependent variable: LOG(y); Method: Panel Least Squares; Sample (adjusted): 2001 2009 Table I.

Variable Coefficient Std. error t-statistic Prob

C 23.678087 1.034935 23.553929 0.0007 LOG(KHU(-1)) 0.053347 0.096312 0.553895 0.5813 LOG(w) 0.053016 0.035276 1.502879 0.1370 LOG(y) 0.455007 0.103061 4.414913 0.0000

Notes: Dependent Variable: LOG(In); Method: Panel EGLS (Cross-section weights); Sample (adjusted): 2001 2009 Table III.

Cross-section fixed (dummy variables) R-squared 0.999713 Adjusted R-squared 0.999668 SE of regression 0.023610 Sum squared resid 0.042922 Log likelihood 216.4634 F-statistic 22,314.75 Prob (F-statistic) 0.000000 Mean dependent var 27.80653 SD dependent var 1.295239 Akaike info criterion 24.521409 Schwarz criterion 24.160325 Hannan-Quinn criter. 24.375798 Durbin-Watson stat 0.994279

Notes: Dependent variable: LOG(y); Method: Panel Least Squares; Sample (adjusted): 2001 2009 Source: World Bank

Table II. Effects specification

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(Bergh et al., 2011; Dutta et al., 2011; Kirby and Ibrahim, 2011; St-Jean and Audet, 2012). First, the human capital role affects the internal behavior of the medium-small enterprises. It facilitates the use and the introduction of new technologies, thereby raising the possibilities of producing new and more competitive goods. Second, from an external sense, human capital facilitates the creation of innovations that can be introduced into medium-small enterprises. Tables III-VI shows that the sign of this variable is positive and significant.

Cross-section fixed (dummy variables) CROSSID Effect

DEN 20.872974 FIN 20.392644 FRA 20.021298 GER 0.920221 ITA 21.021308 JAP 2.106526 NET 20.038526 SPA 21.580640 SWE 20.225976 USA 1.126619

Notes: Dependent Variable: LOG(In); Method: Panel EGLS (Cross-section weights); Sample (adjusted): 2001 2009

Table IV. Effects specification

R-squared 0.997787 Adjusted R-squared 0.997443 SE of regression 0.118501 F-statistic 2,893.558 Prob (F-statistic) 0.000000 Mean dependent var 14.09178 SD dependent var 5.474352 Sum squared resid 1.081278 Durbin-Watson stat 0.956876

Notes: Dependent Variable: LOG(In); Method: Panel EGLS (Cross-section weights); Sample (adjusted): 2001 2009

Table V. Weighted statistics

R-squared 0.994684 Sum squared resid 1.137516 Mean dependent var 10.38485 Durbin-Watson stat 0.824007

Notes: Dependent Variable: LOG(In); Method: Panel EGLS (Cross-section weights); Sample (adjusted): 2001 2009 Sources: World Bank and GEM

Table VI. Unweighted statistics

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H4. Economic growth has a positive effect on innovation Traditionally, the literature considers the effects of innovation on economic growth as it is shown in H1. However, it is also necessary to take into account the feedback effect, that is, the relationship between economic growth and innovation. The reason for this is that higher economic growth increases the firms’ possibilities to sell their goods and services and their competitiveness. And in this situation, entrepreneurships would be motivated to introduce innovations in their business trying to increase their quota in the market.

Tables III-VI shows this positive relationship between income and innovation, showing that there is a virtuous circular process in which innovations stimulate economic growth and the latter would also encourage innovation process encouraging both economic activity and future economic growth.

Finally, the last three hypotheses are tested in Tables VII-X.

H5. The actions of central banks have a positive effect on entrepreneurship As was indicated previously, another factor to be considered is the role of central banks, indicated through the variations of the money supply (ms), which is included in equation (3). If the central banks decrease the money supply, interest rates would increase and savings would be promoted and there would be more resources available. Thus, entrepreneurs would have more opportunities to obtain financial resources to

Cross-section fixed (dummy variables) CROSSID Effect

DEN 20.038492 FIN 0.082721 FRA 20.064682 GER 20.155305 ITA 0.006554 JAP 20.721603 NET 0.026826 SPA 0.395815 SWE 20.322011 USA 0.790176

Notes: Dependent Variable: LOG(F); Method: Panel EGLS (Cross-section weights); Sample (adjusted): 2001 2009

Table VIII. Effects specification

Variable Coefficient Std. error t-statistic Prob

C 3.476692 2.741100 1.268356 0.2098 LOG(l(-2)) 20.316110 0.258855 21.221187 0.2270 LOG(ms) 20.057477 0.097491 20.589561 0.5578 LOG(In(-1)) 0.075321 0.260250 0.289417 0.7733

Notes: Dependent Variable: LOG(F); Method: Panel EGLS (Cross-section weights); Sample (adjusted): 2001 2009 Table VII.

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finance innovative activities. Programs encouraging them to innovate, therefore, would have a higher probability of success. The only down-side to this situation is the increase of the interest rate, because if it is very significant, it could discourage entrepreneurs from investing and innovating.

As shown in the theoretical analysis, there is an alternative to this possibility. An increase of money supply would be considered as a bet that central banks make in favor of small and medium-sized enterprises, to accelerate the innovation process. However, this policy has the negative effect that the increase of prices could reduce the competitiveness of the goods and services of the firms.

Money supply information is obtained from the World Bank’s database World Database Indicators (WDI) and the results of Tables III-VI show that ms has a negative sign and significant so the first possibility is the most accurate.

H6. “Social climate” has a positive effect on entrepreneurship activity In the theoretical analysis, it has been pointed out that “social climate” is one relevant factor to encourage entrepreneurship activity, and income distribution is a proxy variable of such “social climate.” In general terms, a better income distribution would reduce social stress, and probably reduce the social opposition to the innovation process. It also would improve entrepreneurships’ expectations.

In equation (3), the Gini index is used to measure income distribution and the data are obtained from The World Bank. The expected sign is negative because a reduction of this index implies less inequality. Table VII-X shows that the sign is the expected one, so greater equality would have a positive effect on entrepreneurship activity.

R-squared 0.771007 Adjusted R-squared 0.722797 SE of regression 0.238999 F-statistic 15.99295 Prob (F-statistic) 0.000000 Mean dependent var 2.116715 SD dependent var 0.769829 Sum squared resid 3.255869 Durbin-Watson stat 1.741635

Notes: Dependent Variable: LOG(F); Method: Panel EGLS (Cross-section weights); Sample (adjusted): 2001 2009

Table IX. Weighted statistics

R-squared 0.704469 Sum squared resid 3.289101 Mean dependent var 1.600878 Durbin-Watson stat 1.193146

Notes: Dependent Variable: LOG(F); Method: Panel EGLS (Cross-section weights); Sample (adjusted): 2001 2009 Sources: World Bank and GEM

Table X. Unweighted statistics

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H7. Innovations have a positive effect on entrepreneurship Equation (3) also tests the Drucker (1998) statement that there is entrepreneurship activity when there are innovations. The sign of variable innovation (In) is positive, showing the positive relationship. Therefore, other circular process appears in this case, showing that innovations would have positive effects on economic growth and entrepreneurship, and the latter would also encourage innovation activity, allowing a positive effect on economic activity. If this virtuous circle is not stopped, the country would benefit by higher levels of employment and welfare.

5. Conclusions In previous sections, the relationship between innovations, entrepreneurship and economic growth has been analyzed from theoretical and empirical points-of-view. To develop the analysis, the Schumpeterian approach has been considered. From his perspective, innovation plays a central role in the economic growth process and the entrepreneur is the vehicle to introduce the new technologies to improve the firms’ activity and to obtain higher profits.

In this process, it is also necessary to take into account other factors that would have positive effects. First, the institutions, especially the monetary institutions in our case, because they would facilitate the entrepreneurs in obtaining the resources that they need to develop their activity. In this case, an expansionary monetary policy would be a signal to small and medium-size enterprises that the central banks favor their activity. However, this kind of policy has negative effects due to increase of prices, so it could be more convenient to do the opposite.

Second, “social climate” is the other factor to be considered because a reduction of social stress would stimulate entrepreneurships to carry out their activity. The main problem is to measure this factor, and income distribution is the variable that represents it.

On the other hand, other possibilities have also been considered to complete the model. First, it is considered that the economic growth process would also promote innovations and the latter would encourage entrepreneurship activity (following the Drucker statement). From this perspective, a virtuous circular process is included. Innovations would encourage economic growth and there is a feedback process. Entrepreneurship would carry out innovation activity having an indirect effect on economic growth. And there is also a feedback process again in the case of innovations.

The empirical analysis confirms these perspectives. Therefore, if the economic activity is not stopped, due to incorrect measures or foreign shocks, the feedback process would result in the economy achieving higher levels of employment and welfare.

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About the authors Miguel-Ángel Galindo is Professor of Applied Economics at University of Castilla-La Mancha (Spain). His research areas are economic growth, fiscal and monetary policies, entrepreneurship and ethics. He has published several articles on these topics in international specialised journals. Miguel-Ángel Galindo is the corresponding author and can be contacted at: [email protected]

Marı́a-Teresa Méndez-Picazo is Assistant Professor of Finance and Accounting at the University Complutense of Madrid (Spain). Her research areas are entrepreneurship, international accounting and economic growth. She has published several articles on these topics in international specialised journals and books.

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