Education, Income, and the Dynamics of Formal Business Entry in the Philippines: An ARDL Analysis

Information from the abstract

Formal business entry—the registration of new enterprises as legally distinct entities—is a widely used indicator of an economy's entrepreneurial dynamism and institutional quality, yet empirical evidence on its determinants in the Philippines specifically remains limited, with existing macro-entrepreneurship literature drawing largely on cross-country panels that average over substantial between-country heterogeneity. This study examines the short-run and long-run macroeconomic and structural determinants of formal business entry in the Philippines using annual data drawn from the World Bank's World Development Indicators (WDI), covering new business density (new limited liability company registrations per 1,000 working-age population), GDP per capita, tertiary enrollment, and domestic credit to the private sector. Given the constraints of a single-country annual time series, the study employs an Autoregressive Distributed Lag (ARDL) bounds-testing framework, appropriate for regressors of mixed order of integration and for the modest sample sizes typical of national-level annual macroeconomic data. The fitted model, estimated over 2009–2023 (n = 15) after automated lag-order and variable selection reduced an initially over-parameterized specification, retained GDP per capita and tertiary enrollment as significant predictors; domestic credit could not be included without violating basic estimability constraints. GDP per capita showed a sign reversal across the lag structure—positive contemporaneously, negative at a one-year lag—while tertiary enrollment showed a robust positive association with formal business entry in both the short run and the estimated long-run relationship. A Pesaran-Shin-Smith bounds test indicated evidence of a long-run equilibrium relationship among the variables, though this result, along with an atypically large error-correction coefficient, should be interpreted cautiously given the study's small sample. The findings suggest that higher education and formal entrepreneurial registration are positively associated in the Philippine context, with implications for how tertiary-education and entrepreneurship-promotion policies are jointly framed, while leaving the credit-access channel as an open question for future research using longer or more granular national data sources.

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Related topics: Entrepreneurship Studies and Influences · Firm Innovation and Growth · Unemployment and Economic Growth