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Title Nexus between financial intermediation, entrepreneurship and economic growth

Author(s) Zahid Mehmood Akhtar

Abstract This study examines the relationship between financial intermediation, entrepreneurship, and economic growth across countries driven by innovation, efficiency and resources, as well as in Pakistan, with a particular focus to assess which type of economy benefits the most from entrepreneurship in this relationship. While financial intermediation is recognized as a key driver of economic growth and entrepreneurship, the interconnectedness between these domains remains underexplored. Using data of eighty four countries from 1996 to 2020 extracted from World Development Indicators, World Governance Indicators and International Labor Organization, the study applies pooled OLS, Fixed Effect, Random Effect, and Generalized Method of Moments models to analyze the direct effects of financial intermediation on economic growth and entrepreneurship globally, and within specific economic settings. Structural equation modeling (SEM) is employed to examine the mediating role of entrepreneurship. For the Pakistan-specific analysis, the Auto-Regressive Distributed Lag model is used for both long-term and short-term effects, alongside SEM to validate the mediating role. Key findings indicate that financial intermediation positively influences both economic growth and entrepreneurship across all types of economies, including Pakistan. Entrepreneurship significantly mediates the relationship between financial intermediation and economic growth globally, however with varying impacts across different economic contexts. In innovation-driven and efficiency-driven economies, entrepreneurship plays a significant mediating role, while in resource-driven economies; entrepreneurship does not play any mediating role and remains largely necessity-driven, with weaker financial systems and governance structures limiting its potential. While efficiency-driven economies see a higher mediation effect, suggesting that these economies benefit the most from entrepreneurial activity in the finance-growth nexus. In the case of Pakistan, the study finds that entrepreneurship significantly mediates the effect of financial intermediation on economic growth, highlighting the need for robust financial intermediation, government effectiveness, and rule of law. The findings suggest that in innovation-driven economies, policies fostering venture capital ecosystems are critical, while in resource-driven economies, financial inclusion programs and microfinance initiatives should be prioritized to improve entrepreneurial ecosystems, and address unemployment through entrepreneurship aiming to foster sustainable economic growth.

Type Thesis/Dissertation PhD

Faculty Management Sciences

Department Management Sciences

Language English

Publication Date 2025-07-28

Subject Finance

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