The Relationship between Entrepreneurial Activity and Income Inequality: A Comparative Analysis of “Good Entrepreneurial Framework Conditions” Group and “Poor Entrepreneurial Framework Conditions” Group

Entrepreneurial activity exerts a complex influence on income inequality, contingent upon the surrounding entrepreneurship conditions. Using an unbalanced panel of 78 countries from 2002 to 2018, this study investigates how total and motive-specific entrepreneurial activities, namely opportunity-based (OEA), high-expectation (HEA), and necessity-based (NEA), affect income inequality. Both static fixed-effects and dynamic GMM estimations are applied, using the Gini coefficient and Decile Dispersion Ratio to ensure robustness. Results show that overall entrepreneurial activity is negatively associated with income inequality in countries with poor entrepreneurial frameworks but positively associated in those with good entrepreneurial frameworks. When disaggregated by motivation, OEA consistently reduces inequality across all samples, while HEA tend to exacerbate inequality, particularly in economies with favorable entrepreneurship conditions. These findings challenge policies that promote entrepreneurship as a driver of income equality. In economies characterized by well-developed entrepreneurial ecosystems, policymakers should acknowledge that indiscriminate promotion of entrepreneurship may inadvertently exacerbate income disparities. Instead, targeted investments in education and skills development are likely to produce more equitable and sustainable outcomes. Conversely, in countries with less developed entrepreneurial frameworks, broad encouragement of entrepreneurial activity can stimulate job creation and help alleviate inequality. Overall, the results emphasize the necessity of aligning entrepreneurship policies with prevailing structural and institutional conditions to ensure that entrepreneurial dynamism fosters inclusive and sustainable economic growth.