The Impact of Youth Bulge on Entrepreneurship. The Moderating Role of Institutional Quality Across Different Income Levels

Master's Thesis from the year 2023 in the subject Economics - Macro-economics, general, grade: 10/15, University of Marburg (Economics), course: Economics of the Middle East, language: English, abstract: This paper investigates the relationship between the youth bulge and entrepreneurship, with the quality of institutions acting as a moderating factor across diverse income levels. The youth bulge, defined as the proportion of young people in a population, is recognized as one of the drivers of economic development. However, its relationship with entrepreneurship, particularly when moderated by institutional quality, has not been widely explored. This thesis examines this relationship using two different indicators of entrepreneurship and a dataset covering a wide range of countries across the income spectrum. The study finds evidence supporting a U-shaped relationship between income levels and New Business Density but finds no evidence of such a relationship between income levels and Total Early-stage Entrepreneurial Activity. The empirical analysis reveals that youth has a negative effect on New Business Density in low-income countries and a positive effect in high-income countries, while it has a positive effect on entrepreneurial activity across all income levels. The quality of institutions plays a significant moderating role in shaping this relationship. A one percentage point increase in the youth bulge causes an increase in Total Early-stage Entrepreneurial Activity by approximately 0.6 percentage points and an increase in the New Business Density index by approximately 0.1 points. These results are robust across all models, with insufficient evidence for the negative effect of the youth bulge on New Business Density in lower-income countries. Additionally, the study provides evidence of a U-shaped relationship between the shadow economy and entrepreneurship, as well as between Governance Indicators and entrepreneurship.