Eurasian Economic Review

, Volume 8, Issue 1, pp 131–160 | Cite as

Impact of institutions on entrepreneurship: a panel data analysis

Original Paper
  • 141 Downloads

Abstract

The purpose of this paper is to study the relation between institutions and entrepreneurship from the perspective of institutional economics. In the first section, we discuss the importance, role, and interaction of the institutions and entrepreneurs in the economic and social change/development process. In this context, we point out three roles of institutions: the role of facilitating economic/social exchange, the coordination role of economic actors’ decisions, and the role of the allocation of entrepreneurs between various sectors. In the second part, we investigate the impacts of formal institutions and institutions of governance on formal and informal entrepreneurship using an unbalanced panel data set of 54 countries over the 2004–2012 period. Estimation results reveal that while both formal institutions and governance stimulate formal entrepreneurship, the former is negatively associated with informal entrepreneurship. In addition, we find that financial development increases the positive impact of institutions on formal entrepreneurship. These results also shed light on the link between institutions and entrepreneurship, as suggested by Baumol and de Soto.

Keywords

Formal institutions Institutions of governance Formal entrepreneurship Informal entrepreneurship Panel data analysis 

JEL Classification

L26 C33 B1 B52 

References

  1. Acemoglu, D., Aghion, P., & Zilibotti, F. (2006). Distance to frontier, selection, and economic growth. Journal of the European Economic Association, 4(1), 37–74.CrossRefGoogle Scholar
  2. Acemoglu, D., Gallego, F. A., & Robinson, J. A. (2014). Institutions, human capital and development. Annual Review of Economics, 6, 875–912.CrossRefGoogle Scholar
  3. Acemoglu, D., & Johnson, S. (2005). Unbundling institutions. Journal of Political Economy, 113(5), 949–995.CrossRefGoogle Scholar
  4. Acemoglu, D., Johnson, S., & Robinson, J. A. (2005). Institutions as a fundamental cause of long-run growth. In P. Aghion and S. N. Durlauf (Eds.), Handbook of economic growth (pp. 385–472). North Holland.Google Scholar
  5. Acs, Z. J., Desai, S., & Klapper, L. (2008). What does ‘entrepreneurship’ data really show? Small Business Economics, 31, 265–281.CrossRefGoogle Scholar
  6. Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction. Econometrica, 60(2), 323–351.CrossRefGoogle Scholar
  7. Aghion, P., & Howitt, P. (2009). Economics of growth. Cambridge, Massachusetts: The MIT Press.Google Scholar
  8. Anokhin, S., & Schulze, W. S. (2009). Entrepreneurship, innovation, and corruption. Journal of Business Venturing, 24(5), 465–476.CrossRefGoogle Scholar
  9. Aparicio, S., Urbano, D., & Audretsch, D. (2016). Institutional factors, opportunity entrepreneurship and economic growth: Panel data evidence. Technological Forecasting and Social Change, 102, 45–61.Google Scholar
  10. Auerswald, P., Kauffman, S., Lobo, J., & Shell, K. (2000). The production recipes approach to modeling technological innovation: an application to learning by doing. Journal of Economic Dynamics and Control, 24, 389–450.CrossRefGoogle Scholar
  11. Baumol, W. J. (1968). Entrepreneurship in economic theory. American Economic Review, 58(2), 64–71.Google Scholar
  12. Baumol, W. J. (1990). Entrepreneurship: productive, unproductive and destructive. Journal of Political Economy, 98(5), 893–921.CrossRefGoogle Scholar
  13. Baumol, W. J. (2004). Entrepreneurial enterprises, large established firms and other components of the free market growth machines. Small Business Economics, 23, 9–21.CrossRefGoogle Scholar
  14. Baumol, W. J. (2010). The microtheory of innovative entrepreneurship. Princeton and Oxford: Princeton University Press.CrossRefGoogle Scholar
  15. Bjørnskov, C., & Foss, N. J. (2008). Economic freedom and entrepreneurial activity: some cross-country evidence. Public Choice, 134(3–4), 307–328.CrossRefGoogle Scholar
  16. Boettke, P., & Fink, A. (2011). Institutions first. Journal of Institutional Economics, 7(4), 499–504.CrossRefGoogle Scholar
  17. Bosma, N.S., Wennekers, S., & Amorós, J.E. (2012). Global Entrepreneurship Monitor 2011 Extended Report. Babson Park, MA: Babson College, Santiago, Chile: Universidad del Desarollo, Kuala Lumpur, Malaysia: Universiti Tun Abdul Razak.Google Scholar
  18. Buehn, A., & Schneider, F. (2012). Shadow economies around the world: novel insights, accepted knowledge, and new estimates. International Tax and Public Finance, 19(1), 139–171.CrossRefGoogle Scholar
  19. Campbell, N. D., & Rogers, T. M. (2007). Economic freedom and net business formation. Cato Journal, 27(1), 23–36.Google Scholar
  20. Dau, L. A., & Cuervo-Cazurra, A. (2014). To formalize or not to formalize: entrepreneurship and pro-market institutions. Journal of Business Venturing, 29(5), 668–686.CrossRefGoogle Scholar
  21. de Soto, H. (2000). The mystery of capital: why capitalism triumphs in the West and fails everywhere else. New York: Basic Books.Google Scholar
  22. de Soto, H. (2010). Understanding shadow economies of the developing and developed worlds. In E. Chamlee-Wright (Ed.). The annual proceedings of the wealth and well-being of nations 2009–2010, vol. II (pp. 15–24).Google Scholar
  23. Dreher, A., & Schneider, F. (2010). Corruption and the shadow economy: an empirical analysis. Public Choice, 144(1–2), 215–238.CrossRefGoogle Scholar
  24. Dutta, N., Sobel, R. S., & Roy, S. (2013). Entrepreneurship and political risk. Journal of Entrepreneurship and Public Policy, 2(2), 130–143.Google Scholar
  25. El Harbi, S., & Anderson, A. R. (2010). Institutions and the shaping of different forms of entrepreneurship. The Journal of Socio-economics, 39(3), 436–444.CrossRefGoogle Scholar
  26. Elgin, C., & Oztunali, O. (2012). Shadow economies around the world: model based estimates. Bogazici University Department of Economics Working Papers 5.Google Scholar
  27. Fuentelsaz, L., González, C., Maícas, J. P., & Montero, J. (2015). How different formal institutions affect opportunity and necessity entrepreneurship. BRQ Business Research Quarterly, 18(4), 246–258.CrossRefGoogle Scholar
  28. Gohmann, S. F. (2012). Institutions, latent entrepreneurship, and self-employment: an international comparison. Entrepreneurship Theory and Practice, 36(2), 295–321.CrossRefGoogle Scholar
  29. Helpman, E. (1992). Endogenous macroeconomic growth theory. European Economic Review, 36(2), 237–267.CrossRefGoogle Scholar
  30. Herrera-Echeverri, H., Haar, J., & Estévez-Bretón, J. B. (2014). Foreign direct investment, institutional quality, economic freedom and entrepreneurship in emerging markets. Journal of Business Research, 67(9), 1921–1932.CrossRefGoogle Scholar
  31. Holcombe, R. G. (2014). The economic theory of rights. Journal of Institutional Economics, 10(03), 471–491.CrossRefGoogle Scholar
  32. Jiménez, A., Palmero-Cámara, C., González-Santos, M. J., Gonzalez-Bernal, J., & Jiménez-Eguizábal, J. A. (2015). The impact of educational levels on formal and informal entrepreneurship. BRQ Business Research Quarterly, 18, 204–212.CrossRefGoogle Scholar
  33. Johnson, S., McMillan, J., & Woodruff, C. (2002). Property rights and finance. American Economic Review, 92(5), 1335–1356.Google Scholar
  34. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). The Worldwide Governance Indicators: methodology and analytical issues. World Bank, Policy Research Working Paper 5430.Google Scholar
  35. Keefer, P., & Knack, S. (2007). Boondoggles, rent-seeking, and political checks and balances: public investment under unaccountable governments. The Review of Economics and Statistics, 89(3), 566–572.Google Scholar
  36. King, R. G., & Levine, R. (1993). Finance, entrepreneurship and growth. Journal of Monetary Economics, 32(3), 513–542.CrossRefGoogle Scholar
  37. Kirzner, I. M. (1973). Competition and entrepreneurship. Chicago: Chicago University Press.Google Scholar
  38. Kirzner, I. M. (1979). Perception, opportunity and profit: studies in the theory of entrepreneurship. Chicago: The University of Chicago Press.Google Scholar
  39. Kirzner, I. M. (1997). Entrepreneurial discovery and the competitive market process: an Austrian approach. Journal of Economic Literature, 35(1), 60–85.Google Scholar
  40. Kirzner, I. M. (1999). Creativity and/or alertness: a reconsideration of the Schumpeterian entrepreneur. Review of Austrian Economics, 11, 5–17.CrossRefGoogle Scholar
  41. Klapper, L., Amit, R., & Guillén, M. F. (2010). Entrepreneurship and firm formation across countries. In J. Lerner, & A. Schoar (Eds.). International differences in entrepreneurship (pp. 129–158). University of Chicago Press.Google Scholar
  42. Knight, F. H. (1921). Risk, uncertainty and profit (p. 1964). New York: Augustus M. Kelley, Bookseller.Google Scholar
  43. Kreft, S. F., & Sobel, R. S. (2005). Public policy, entrepreneurship, and economic freedom. Cato Journal, 25(3), 595–616.Google Scholar
  44. Landes, D. S., Mokyr, J., & Baumol, W. J. (2010). The invention of enterprise: entrepreneurship from ancient mesopotamia to modern times. Princeton and Oxford: Princeton University Press.CrossRefGoogle Scholar
  45. Leibenstein, H. (1968). Entrepreneurship and development. American Economic Review, 58(2), 72–83.Google Scholar
  46. Levine, R. (2005). Finance and growth: theory and evidence. In P. Aghion & S. N. Durlauf (Eds.), Handbook of economic growth (Vol. 1A). Amsterdam: Elsevier.Google Scholar
  47. Lin, J. Y., & Nugent, J. B. (1995). Institutions and economic development. In J. Behrman & T. N. Srinivasan (Eds.). Handbook of Development Economics, vol. III (pp. 2301–2370). Elsevier Science B.V.Google Scholar
  48. Lucas, R. E. (1978). On the size distribution of business firms. Bell Journal, 9, 509–523.CrossRefGoogle Scholar
  49. Matthews, R. C. O. (1986). The economics of institutions and the source of growth. The Economic Journal, 96, 903–918.CrossRefGoogle Scholar
  50. McMullen, J. S., Bagby, D., & Palich, L. E. (2008). Economic freedom and the motivation to engage in entrepreneurial action. Entrepreneurship Theory and Practice, 32(5), 875–895.CrossRefGoogle Scholar
  51. Nelson, R. R., & Winter, S. G. (1982). An evolutionary theory of economic change. Cambridge Massachusetts: The Belknap Press of Harvard University Press.Google Scholar
  52. North, D. N. (1990). Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  53. North, D. N. (1997). The contribution of the new institutional economics to an understanding of the transition problem. WIDER Annual Lecture 1, UNU World Institute for Development Economic Research, (UNU/WIDER).Google Scholar
  54. Nyström, K. (2008). The institutions of economic freedom and entrepreneurship: evidence from panel data. Public Choice, 136(3–4), 269–282.CrossRefGoogle Scholar
  55. Powell, B., & Rodet, C. S. (2012). Praise and profits: cultural and institutional determinants of entrepreneurship. Journal of Private Enterprise, 27(2), 19–42.Google Scholar
  56. Powell, B., & Weber, R. (2013). Economic freedom and entrepreneurship: a panel study of the United States. American Journal of Entrepreneurship, 6(1), 64–84.Google Scholar
  57. Rodrik, D., Subramanian, A., & Trebbi, F. (2004). Institutions rule: the primacy of institutions over geography and integration in economic development. Journal of Economic Growth, 9, 131–165.CrossRefGoogle Scholar
  58. Romer, P. M. (1990). Endogenous technological change. Journal of Political Economy, 98, 71–102.CrossRefGoogle Scholar
  59. Schultz, T. W. (1968). Institutions and the rising economic value of man. American Journal of Agricultural Economics, 50(5), 1113–1122.CrossRefGoogle Scholar
  60. Schumpeter, J. A. (1934). The theory of economic development: an Inquiry into profits, capital, credit, interest and business cycle (p. 1961). New York: Oxford University Press.Google Scholar
  61. Scott, W. R. (1995). Institutions and organizations. Newbury Park, London: Sage Publications.Google Scholar
  62. Shell, K. (1966). Toward a theory of inventive activity and capital accumulation. American Economic Review, 56(2), 62–68.Google Scholar
  63. Shell, K. (1973). Inventive activity, industrial organization and economic growth. In J. A. Mirrlees & N. Stern (Eds.), Models of economic growth (pp. 77–100). London: McMillan.CrossRefGoogle Scholar
  64. Simón-Moya, V., Revuelto-Taboada, L., & Guerrero, R. F. (2014). Institutional and economic drivers of entrepreneurship: an international perspective. Journal of Business Research, 67(5), 715–721.CrossRefGoogle Scholar
  65. Smith, A. (1976). The Wealth of Nations. Chicago: University of Chicago Press.Google Scholar
  66. Sobel, R. S. (2008). Testing Baumol: institutional quality and the productivity of entrepreneurship. Journal of Business Venturing, 23(6), 641–655.CrossRefGoogle Scholar
  67. Sobel, R. S., Clark, J. R., & Lee, D. R. (2007). Freedom, barriers to entry, entrepreneurship, and economic progress. Review of Austrian Economics, 20(4), 221–236.CrossRefGoogle Scholar
  68. Thai, M. T. T., & Turkina, E. (2014). Macro-level determinants of formal entrepreneurship versus informal entrepreneurship. Journal of Business Venturing, 29(4), 490–510.CrossRefGoogle Scholar
  69. Wennekers, S., Wennekers, A. V., Thurik, R., & Reynolds, P. (2005). Nascent entrepreneurship and the level of economic development. Small Business Economics, 24(3), 293–309.CrossRefGoogle Scholar
  70. Williamson, O. E. (2000). The new institutional economics: taking stock, looking ahead. Journal of Economic Literature, XXXVIII, 595–613.Google Scholar
  71. Williamson, C. R. (2010). Two sides of de Soto: property rights, land titling and development. In E. Chamlee-Wright (Ed.) The annual proceedings of the wealth and well-being of nations 2009–2010, vol. II (pp. 95–108).Google Scholar
  72. Wiseman, T., & Young, A. T. (2013). Economic freedom, entrepreneurship, & income levels: some US state-level empirics. American Journal of Entrepreneurship, 6(1), 104.Google Scholar
  73. World Bank (2015). Worldwide Governance Indicators. http://info.worldbank.org/governance/wgi/index.asp. Accessed 10 Aug 2015.
  74. Yu, T. F. (2001). An entrepreneurial perspective of institutional change. Constitutional Political Economy, 12, 217–236.CrossRefGoogle Scholar

Copyright information

© Eurasia Business and Economics Society 2017

Authors and Affiliations

  1. 1.Faculty of CommerceYeditepe UniversityIstanbulTurkey
  2. 2.Department of EconomicsYildiz Technical UniversityIstanbulTurkey

Personalised recommendations