Entrepreneurship and regional economic dynamics: evidence from the Liberec region (2002–2024) using Granger causality and VAR models

This study examines the correlation between entrepreneurship and regional economic success in the Liberec Region of the Czech Republic from 2002 to 2024. Utilizing yearly data on GDP per capita, unemployment, average income, investment, and new business formation, the study employs descriptive statistics, multiple regression, Granger causality tests, and Vector Autoregression (VAR) modeling. The results show that GDP per capita and average income have been steadily rising, whereas entrepreneurship has been following a cyclical pattern that is the opposite of unemployment trends. Regression research indicates that unemployment and income are the primary predictors of GDP, but the establishment of new firms exerts less short-term impact. Nonetheless, causality studies reveal a delayed, bidirectional link between entrepreneurship and GDP: economic progress fosters company creation, which, in turn, bolsters growth after a temporal lag. The results using VAR further support the idea that historical GDP values and lagged impacts of unemployment and entrepreneurship affect how regions expand over time. Entrepreneurship does not yield immediate benefits; instead, it fosters long-term growth by enhancing feedback loops within the regional economy. These findings indicate that policies designed to promote high-quality entrepreneurial activity, enhance labor market outcomes, and maintain investment are crucial for facilitating inclusive growth. This study contributes empirical data to the existing literature on entrepreneurship and regional development by concentrating on a specific Czech area, offering insights for policymakers in Central and Eastern Europe.