The effect of necessity and opportunity entrepreneurship and SME financing on sustainable development

The reasons why entrepreneurs fail to take sustainable development initiatives may be due to entrepreneurial motivation or to lack of support from government and banks. This study addresses the relationship between entrepreneurship and sustainable development through a unique sample of 48 countries from 2007 to 2019 with the following panel data results. First, we examine how the Sustainable Development Index (SDI) responds to entrepreneurship measures. We find that opportunity entrepreneurship, but not necessity entrepreneurship, contributes positively to SDI. Second, we document a richer dynamic for SDI and entrepreneurship through banking and venture capital channels. We find that venture capital only promotes opportunity entrepreneurship to increase SDI, but bank financing affects both opportunity and necessity entrepreneurship. Third, when the share of venture capital to gross domestic product is higher than a threshold opportunity entrepreneurship has positive effects on SDI. The evidence suggests that venture capital operates very differently from banking on how to make sustainable development grow, leading to policy implications.