Economic Growth, National Systems of Entrepreneurship and the Solow Residual

Abstract

For over 50 years finding an explanation for the Solow Residual has eluded researchers. This paper offers an explanation for the Solow residual by creating a measure of National Systems of Entrepreneurship (institutions and entrepreneurial behavior). The System is based on a penalty for bottleneck function that identified the weakest link in the system. The results show that over 75% of the variance in a cross section of 60 countries can be explained by national systems of entrepreneurship.