The Interplay of Entrepreneurship, Investment, Credit, and Market Capitalization in Shaping Sustainable Economic Growth: An ARDL Approach for the United States

Abstract

This study explores the interplay between entrepreneurship, foreign direct investment (FDI), domestic credit, and market capitalization in driving sustainable economic growth in the United States from 2001 to 2023. It aims to provide valuable insights for policymakers to understand how these factors collectively influence economic performance. The study employs an Autoregressive Distributed Lag (ARDL) model to analyze the long- and short-term relationships between the variables. An error correction model (ECM) is also used to investigate the speed of adjustment towards long-run equilibrium. Data for the analysis covering key economic indicators such as GDP, early-stage entrepreneurial activity, FDI, credit, and market capitalization. The results indicate that entrepreneurship (TEA) has a consistently positive impact on economic growth across all lags. FDI shows a positive effect in the current period, though its lagged effects are weaker. Domestic credit to the private sector, while significant, has a negative short-term effect on GDP growth, suggesting that credit allocation inefficiencies may hinder growth. Market capitalization exhibits a strong positive effect, underlining the importance of well-developed financial markets for economic expansion. The error correction model suggests that adjustments towards long-term equilibrium are slow, highlighting areas for policy intervention. This paper contributes to the understanding of how key economic factors interact to influence sustainable growth, particularly by emphasizing the role of entrepreneurship and market capitalization. The findings are relevant for policymakers seeking to foster long-term economic growth in the U.S., as well as for future research on economic development dynamics.