Entrepreneurship, Innovation, and Economic Growth: Evidence from Saudi Arabia

There have been growing interests on studies focusing on the shifting from resource economy to knowledge economy, and entrepreneurship and innovation seem to take leading roles in such discourse. Despite the fact that entrepreneurship has been recognized for the last few decades as an essential component of economic growth, which is facilitated by technological innovation, yet several studies could not establish such, especially in developing economies. Since Saudi Arabia government is dedicated to the achievement of Vision 2030 among which are diversifications of the economy from oil, increase the participation of small and medium enterprises and reduction of unemployment, there is a need for this study. This study examines the impact of entrepreneurship and innovation on economic growth in Saudi Arabia using the data obtained from World Bank Development Indicators (WDI) for the period 2005–2016. The result of the regression analysis revealed that innovation positively and significantly impacted on entrepreneurship. The results of the endogenous growth model further reveal that while entrepreneurship and innovation positively influence economic growth, the impact of entrepreneurship is significant but that of innovation is not significant on economic growth. This implies that entrepreneurship directly impacted on economic growth but innovation only impact on economic growth through entrepreneurship. Saudi government should be committed to further create a more suitable entrepreneurship ecosystem whereby improved entrepreneurial framework conditions, such as increasing the level of R&D transfers and innovation, finance for entrepreneurs, enhancing post-school entrepreneurship training and encouraging the participation of the private sector are achieved.