Examining GDP Growth, Unemployment, and InflationShocks to Entrepreneurial Activity in The Philippines

This study examines the shocks of key macroeconomic indicators—GDP growth, unemployment, and inflation—on entrepreneurial activity ‎in the Philippine context. Employing a Vector Error Correction Model (VECM) framework, the analysis draws on annual time-series data to ‎assess both long-run equilibrium relationships and short-run adjustment dynamics. The Augmented Dickey-Fuller (ADF) test results reveal ‎a mixed order of integration, justifying the use of Johansen cointegration analysis. The cointegration results confirm the existence of a long-run relationship among the variables, validating the application of VECM. The long-run estimates reveal that GDP growth exerts a statistically significant and positive effect on entrepreneurship, supporting the hypothesis that economic expansion facilitates business formation ‎and development. Conversely, unemployment does not have a statistically significant long-run effect, suggesting that labor market fluctua‎tions do not directly translate into entrepreneurial activity in the Philippine setting. Notably, inflation demonstrates a statistically significant ‎positive effect in the long run, contrary to traditional theoretical expectations. This indicates a context-dependent relationship where moderate ‎inflation, possibly under accommodative monetary conditions, may incentivize entrepreneurial behavior. Short-run dynamics reveal that ‎GDP growth and inflation play key roles in adjusting toward long-run equilibrium, while entrepreneurship itself has limited corrective power. Impulse response functions further illustrate the differentiated impacts of macroeconomic shocks: GDP shocks temporarily boost entre‎preneurship, inflation shocks suppress it in the short to medium term, and unemployment shocks show no significant effect‎.