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Does entrepreneurial activity matter for economic growth in developing countries? The role of the institutional environment

Abstract

The discussion on which institutions determine entrepreneurial activity – and the role of institutions in the aggregated output for developing countries – is as yet unresolved. The extant literature about entrepreneurship recognizes new ventures as potential mechanisms for long-term development. Yet, there is a consensus on the lack of evidence, particularly for these countries. Drawing on institutional economics, this article explores the interrelationships among institutional environment, entrepreneurial activity, and economic growth. To this end, we use simultaneous-equation panel data models for a sample of 14 developing countries (78 observations) over the period of 2004–2012. The main findings suggest a causal chain running from institutions to opportunity entrepreneurship, which is linked to the economic growth of emerging economies. In particular, we find that institutional factors – such as the number of procedures to start a new business, private credit coverage ,, and access to communication– influence entrepreneurial activity driven by opportunity. Policy implications for developing countries could be derived in order to enhance their economic performance through entrepreneurial activity.

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Acknowledgments

The authors acknowledge Maria Minniti and anonymous reviewers for valuable comments and suggestions. In addition, David Urbano and Maria Noguera acknowledge the financial support from project ECO2017-87885-P (Spanish Ministry of Economy & Competitiveness) and David Urbano acknowledges 2017-SGR-1056 (Economy & Knowledge Department, Catalan Government) and ICREA under ICREA Academia programme. Sebastian Aparicio acknowledges Durham University Business School for constant support. Additionally, Sebastian acknowledges COLCIENCIAS Ph.D. programme (617/2013), as well as Sapiencia-Enlaza Mundos (Municipio de Medellín) for financial support during Ph.D. studies.

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Correspondence to David Urbano.

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Appendices

Appendix 1

Table 4 List of countries

Appendix 2

Table 5 Results of simultaneous equations for a larger sample of developed and developing countries

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Urbano, D., Audretsch, D., Aparicio, S. et al. Does entrepreneurial activity matter for economic growth in developing countries? The role of the institutional environment. Int Entrep Manag J (2019) doi:10.1007/s11365-019-00621-5

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Keywords

  • Institutions
  • Entrepreneurial activity
  • Economic growth
  • Developing countries