Advertisement

Regulations, institutional quality and entrepreneurship

  • Dustin ChambersEmail author
  • Jonathan Munemo
Original Article

Abstract

This paper examines the impact of startup regulations and institutional quality on the level of new business activity in a panel of 119 countries between 2001 and 2012. We find robust evidence that new business creation is significantly lower in countries with excessive barriers to entry, a lack of high-quality governmental institutions, or both. Specifically, increasing by one, the number of steps required to start a new business, reduces entrepreneurial activity between 3 and 7%. Furthermore, a one standard deviation increase in the overall average level of institutional quality is associated with a 34% increase in new business activity.

Keywords

Regulation Governance Institutions Entrepreneurship 

JEL codes

C23 D73 L26 L51 

Notes

References

  1. Aghion, P. (2017). Entrepreneurship and growth: Lessons from an intellectual journey. Small Business Economics, 48(1), 9–24.Google Scholar
  2. Aghion, P., Blundell, R., Griffith, R., Howitt, P., & Prantl, S. (2009). The effects of entry on incumbent innovation and productivity. Review of Economics and Statistics, 91(1), 20–32.Google Scholar
  3. Audretsch, D., Keilbach, M., & Lehmann, E. (2006). Entrepreneurship and economic growth. New York: Oxford University Press.Google Scholar
  4. Auty, R. (2001). The political economy of resource-driven growth. European Economic Review, 45(4–6), 46–839.Google Scholar
  5. Avnimelech, G., Zelekha, Y., & Sharabi, E. (2014). The effect of corruption on entrepreneurship in developed vs. non-developed countries. International Journal of Entrepreneurial Behavior & Research, 20(3), 62–237.Google Scholar
  6. Ayyagari, M., Demirguc-Kunt, A., & Vojislav, M. (2011). “Small vs. young firms across the world: Contribution to employment, job creation, and growth.” Policy Research Working Paper No. 5631, World Bank, Washington, DC.Google Scholar
  7. Bailey, J. B., & Thomas, D. W. (2017). Regulating away competition: The effect of regulation on entrepreneurship and employment. Journal of Regulatory Economics, 52, 54–237.Google Scholar
  8. Baumol, W. J. (1990). Entrepreneurship: Productive, unproductive, and destructive. Journal of Political Economy, 98(5), 893–921.Google Scholar
  9. Beck, T., & Demirguc-Kunt, A. (2006). Small and medium-size enterprises: Access to finance as a growth constraint. Journal of Banking & Finance, 30(11), 43–2931.Google Scholar
  10. Bjørnskov, C., & Foss, N. (2008). Economic freedom and entrepreneurial activity: Some cross-country evidence. Public Choice, 134(3–4), 28–307.Google Scholar
  11. Bjørnskov, C., & Foss, N. (2013). How strategic entrepreneurship and the institutional context drive economic growth. Strategic Entrepreneurship Journal, 7(1), 50–69.Google Scholar
  12. Black, S., & Strahan, P. (2002). Entrepreneurship and bank credit availability. Journal of Finance, 57(6), 33–2807.Google Scholar
  13. Boettke, P., & Coyne, C. (2009). Context matters: Institutions and entrepreneurship. Foundations and Trends in Entrepreneurship, 5(3), 135–209.Google Scholar
  14. Bowen, H., & De Clercq, D. (2008). Institutional context and the allocation of entrepreneurial effort. Journal of International Business Studies, 39(4), 67–747.Google Scholar
  15. Chambers, D., & Munemo, J. (2018). “Natural resource dependency and entrepreneurship: Are nations with high resource rents cursed?” Journal of International Development, forthcoming.Google Scholar
  16. Dau, L., & Cuervo-Cazurra, A. (2014). To formalize or not to formalize: Entrepreneurship and Pro-Market Institutions. Journal of Business Venturing, 29(5), 86–668.Google Scholar
  17. Demirguc-Kunt, A., & Levine, R. (1996). Stock market development and financial intermediaries: Stylized facts. World Bank Economic Review, 10(2), 291–321.Google Scholar
  18. Desai, S. (2009). “Measuring entrepreneurship in developing countries.” UNU-WIDER Research Paper No. 2009/10, United Nations University World Institute for Development Economics Research.Google Scholar
  19. Desai, M., Gompers, P., & Lerner, J. (2003). “Institutions, capital constraints and entrepreneurial firm dynamics: Evidence from Europe.” NBER Working Paper No. 10165, National Bureau of Economic Research, Cambridge, MA.Google Scholar
  20. Djankov, S., Ganser, T., McLiesh, C., Ramalho, R., & Shleifer, A. (2010). The effect of corporate Taxes on investment and entrepreneurship. American Economic Journal: Macroeconomics, 2(3), 31–64.Google Scholar
  21. Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2002). The regulation of entry. Quarterly Journal of Economics, 117(1), 1–37.Google Scholar
  22. Dreher, A., & Gassebner, M. (2013). Greasing the wheels? The impact of regulations and corruption on firm entry. Public Choice, 155(3–4), 32–413.Google Scholar
  23. Freund, C., & Bolaky, B. (2008). Trade, regulations, and income. Journal of Development Economics, 87(2), 21–309.Google Scholar
  24. Fritsch, M., & Noseleit, F. (2013). Investigating the anatomy of the employment effect of new business formation. Cambridge Journal of Economics, 37(2), 77–349.Google Scholar
  25. Gelb, A. (Ed.). (1988). Oil windfalls: Blessing or curse?. Oxford: Oxford University Press.Google Scholar
  26. Haltiwanger, J., Jarmin, R., & Miranda, J. (2010). “Who creates jobs? Small vs. large vs. young.” Paper No. CES-WP-10-7, US Census Bureau, Center for Economic Studies.Google Scholar
  27. Hause, J., & Du Rietz, G. (1984). Entry, industry growth, and the microdynamics of industry supply. Journal of Political Economy, 92(4), 57–733.Google Scholar
  28. Hermes, N., & Lensink, R. (2003). Foreign direct investment, financial development and economic growth. Journal of Development Studies, 40(1), 63–142.Google Scholar
  29. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). “The worldwide governance indicators: Methodology and analytical issues.” Policy Research Working Paper No. 5430, World Bank, Washington DC.Google Scholar
  30. Klapper, L., Amit, R., & Guillén, M. (2010). Entrepreneurship and Firm Formation Across Countries. In J. Lerner & A. Schoar (Eds.), International differences in entrepreneurship (pp. 129–158). Chicago: University of Chicago Press.Google Scholar
  31. Klapper, L., Laeven, L., & Rajan, R. (2006). Entry regulation as a barrier to entrepreneurship. Journal of Financial Economics, 82(3), 591–629.Google Scholar
  32. Klapper, L., Lewin, A., & Delgado, J.Q. (2009). “The impact of the business environment on the business creation process.” World Bank Policy Research Working Paper 4937.Google Scholar
  33. Klapper, L., & Love, I. (2011). The impact of the financial crisis on new firm registration. Economics Letters, 113(1), 1–4.Google Scholar
  34. Mehlum, H., Moene, K., & Tovik, R. (2006). Cursed by resources or institutions? World Economy, 29(8), 31–1117.Google Scholar
  35. Motta, M., Oviedo, A.M., & Santini, M. (2010). “An open door for firms: The impact of business entry reforms.” Viewpoint 323, World Bank Group, Washington, DC. Available at https://www.wbginvestmentclimate.org/uploads/323-Business-entry-reforms.pdf.
  36. Naudé, W. (2010). “Promoting entrepreneurship in developing countries: Policy challenges.” UNU-WIDER Policy Brief No. 4, United Nations University World Institute for Development Economics Research.Google Scholar
  37. North, D. (1991). Institutions. Journal of Economic Perspectives, 5(1), 97–112.Google Scholar
  38. Nyström, K. (2008). The institutions of economic freedom and entrepreneurship: Evidence from panel data. Public Choice, 136(3–4), 82–269.Google Scholar
  39. Ross, M. (2001). Does oil hinder democracy? World Politics, 53(3), 61–325.Google Scholar
  40. Stigler, G. (1971). The theory of economic regulation. Bell Journal of Economics and Management Science, 2(1), 3–21.Google Scholar
  41. Wennekers, S., & Thurik, R. (1999). Linking entrepreneurship and economic growth. Small Business Economics, 13(1), 27–55.Google Scholar
  42. World Bank. (2003). Doing business in 2004: Understanding regulation. Washington: World Bank and Oxford University Press.Google Scholar
  43. Xu, L. (2011). The effects of business environments on development: Surveying new firm-level evidence. World Bank Research Observer, 26(2), 40–310.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Salisbury UniversitySalisburyUSA

Personalised recommendations