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Globalization and Informal Entrepreneurship: A Cross-Country Analysis

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Abstract

This paper provides a comprehensive empirical analysis on the relationship between globalization and informal entrepreneurship. The impact of globalization on informal entrepreneurship was analyzed using cross-country data. Using ordinary least squares and instrumental variables techniques, the results showed that globalization reduces informal entrepreneurship. This finding was robust to various sensitivity analyses including an alternate measure of globalization, an alternate measure of informal entrepreneurship, controlling for additional covariates, accounting for endogeneity of globalization, correcting for outliers, and considering nonlinearities. Furthermore, employing quantile regression analysis, the results suggested that globalization was most effective when informal entrepreneurship was most prevalent. Consequently, nations would benefit with regard to less underground entrepreneurship from policies that promote globalization through such things as removing barriers to trade, improving the transmission of information and promoting involvement in international organizations.

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Notes

  1. The informal economy includes economic activity that is unregistered in the formal economy.

  2. Potrafke (2015) provided an excellent literature review on the consequences of globalization.

  3. Williams and Nadin (2011, p. 345) noted that “although each explanation is more valid in relation to some populations than others, it is only by combining and using all of these explanations that a more comprehensive and fuller explanation can be achieved of the complex multifarious rationales for shadow entrepreneurship in these English communities.”

  4. Notice however that corruption may also lower the spread of informal activities (see Berdiev et al. (2018b) for a discussion on the relationship between corruption and the shadow economy).

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Acknowledgements

We thank the editor, anonymous referees and participants at the 2016 American Public Choice conference in Fort Lauderdale and the 2017 Eastern Economic Association conference in New York City for valuable suggestions.

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  1. Department of Economics, Bryant University, Smithfield, RI, 02917, USA

    Aziz N. Berdiev

  2. Department of Economics, Eastern Michigan University, Ypsilanti, MI, 48197, USA

    James W. Saunoris

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Correspondence to Aziz N. Berdiev.

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Berdiev, A.N., Saunoris, J.W. Globalization and Informal Entrepreneurship: A Cross-Country Analysis. Atl Econ J 47, 65–80 (2019). https://doi.org/10.1007/s11293-019-09612-x

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