Country level efficiency and national systems of entrepreneurship: a data envelopment analysis approach

This paper tests the efficiency hypothesis of the knowledge spillover theory of entrepreneurship. Using a comprehensive database for 63 countries for 2012, we employ data envelopment analysis to directly test how countries capitalize on their available entrepreneurial resources. Results support the efficiency hypothesis of knowledge spillover entrepreneurship. We find that innovation-driven economies make a more efficient use of their resources, and that the accumulation of market potential by existing incumbent businesses explains country-level inefficiency. Regardless of the stage of development, knowledge formation is a response to market opportunities and a healthy national system of entrepreneurship is associated with knowledge spillovers that are a prerequisite for higher levels of efficiency. Public policies promoting economic growth should consider national systems of entrepreneurship as a critical priority, so that entrepreneurs can effectively allocate resources in the economy.