Mediating Role of Entrepreneurship in Explaining the Association Between Income Inequality and Regional Economic Performance

Abstract

This research aims to examine whether income inequality affects economic performance at the regional level, which is mediated by entrepreneurship. By considering hierarchical preferences in consumption, it assumes that income inequality has a negative influence on regional economic growth because it lowers the incentive to innovate. Using a structural equation model, the effect of income inequality on regional economic performance, as well as the mediating effect of entrepreneurship, is tested. The results show that income inequality negatively affects both entrepreneurship and economic growth. This result suggests that insufficient demand for new products/services hampers entrepreneurial activities as well as regional economic performance. The findings contribute to the field, highlighting that entrepreneurship mediates between income inequality and economic performance based on demands.

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