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Which political regimes foster entrepreneurship? An international examination

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Abstract

Whereas the influence of political regimes across various dimensions of economic and political performances has been considered by many scholars, the political regime-entrepreneurship relation has received relatively less attention. This paper uses data on a large sample of nations over two decades to examine the impact of different political regimes on nascent and established entrepreneurs. Results show that while the consideration of aggregate democracies boosts established entrepreneurs, it does not significantly affect nascent entrepreneurship. A unique finding is that border (spatial) democracies have positive spillovers on entrepreneurship in a nation and these spillovers hold across entrepreneurship types. Furthermore, the positive effects of political regimes are not confined to democracies and these influences vary across nascent and established entrepreneurs. Military regimes, however, consistently showed no significant impact on either form of entrepreneurship considered. Finally, the introduction of corruption, capturing institutional weakness, shows that greater corruption acts as an impediment to entrepreneurship, offsetting some of the positive spillovers from political structures.

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Notes

  1. See https://www.justsecurity.org/78307/revenge-of-the-state-freedom-house-finds-tech-increasingly-serves-authoritarian-ends/; https://www.forbes.com/sites/forbesfinancecouncil/2021/09/21/its-time-for-business-leaders-to-take-a-stand-for-democracy/?sh=13da192228fe; http://www.tribune242.com/news/2021/sep/13/derek-smith-managing-political-risk-everyones-busi/.

  2. Pakistan offers a recent example where there is debate on a possible switch from parliamentary to a presidential system of government (https://www.dawn.com/news/1648853/sc-rejects-petitions-for-presidential-form-of-govt). See also our Appendix, below.

  3. Parliamentary democracies are the default category.

  4. See, for example, The Economist at https://www.economist.com/business/is-america-inc-getting-less-dynamic-less-global-and-more-monopolistic/21804757?utm_campaign=the-economist-today&utm_medium=newsletter&utm_source=salesforce-marketing-cloud&utm_term=2021-09-13&utm_content=article-image-2&etear=nl_today_2

  5. Since unemployment and trade openness are likely related to economic prosperity (GDPpc), we drop one of these two variables from some of the estimated models reported below.

  6. As a robustness check, we also tried a one-year lag and the results were qualitatively similar. These results are not reported but are available upon request.

  7. Bosma et al. (2021), https://www.gemconsortium.org/file/open?fileId=50691

  8. We do not consider “potential entrepreneurs” or individuals who see good opportunities to start a firm in the area where they live but have not started the process of doing so (partly because the nascent-established entrepreneurship distinction is more clear-cut).

  9. https://www.gemconsortium.org/data/key-aps

  10. For further information on survey methodology, see https://www.gemconsortium.org/wiki/1599.

  11. https://www.christianbjoernskov.com/bjoernskovrodedata/

  12. For further details on these regime classifications, see Cheibub et al. (2010) and Bjørnskov and Rode (2020).

  13. Because of the relatively short sample period we had to work with in our panel data set (19 years at most, for many countries it was less than that) the estimation of cross-sectional fixed effects was not practical. Many (but not all—see the Appendix) countries had quite stable political regimes over this relatively short time period. Further, the control variables used in the model (e.g., economic freedom and corruption variables) typically also displayed only modest intra-country variation over the time period of our analysis. In situations like this, using a regional fixed effects model set is often considered (e.g., Dharmapala (2021)).

  14. A contributing factor to the lack of significance of the coefficient on Military might be the small set of nations in this category (see the Appendix).

  15. However, specific dimensions of economic freedom might matter, as noted by Goel et al. (2015).

  16. Since government size, tied to bureaucracy and government favors, can impact corruption (see Audretsch et al. (2021)), we drop government size (GovernmentSIZE) as a regressor in Table 4.

  17. Alternately, nascent entrepreneurs might be overly optimistic in the initial stages, either discounting or not experiencing the full influence of political regimes (also see Petrova and Bates (2012)).

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Authors and Affiliations

  1. Department of Economics, Illinois State University, Normal, IL, 61790-4200, USA

    Rajeev K. Goel

  2. Innovation and International Competition, Kiel Institute for the World Economy, 24105, Kiel, Germany

    Rajeev K. Goel

  3. Department of Economics, University of Akron, Akron, OH 44325, USA

    Michael A. Nelson

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Correspondence to Rajeev K. Goel.

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Appendices

Appendix

Country Regime Designations

Presidential democracies

Argentina (2001–2018)

Dominican Rep. (2007–2009)

Malawi (2012–2013)

Switzerland (2002–2020)

Bolivia (2008–2014)

Ecuador (2004–2019)

Mexico (2001–2019)

United States (2001–2020)

Brazil (2001–2020)

El Salvador (2012–2016)

Nigeria (2011–2013)

Uruguay (2006–2020)

Chile (2002–2020)

Ghana (2010–2013)

Panama (2009–2020)

Venezuela (2003–2011)

Colombia (2006–2020)

Guatemala (2009–2020)

Peru (2004–2018)

 

Costa Rica (2010–2014)

Indonesia (2006–2020)

Philippines (2006–2015)

 

Cyprus (2016–2020)

Korea, Rep. (2001–2020)

Suriname (2013–2014)

 

Mixed democracies

Armenia (2019)

Finland (2001–2016)

Lithuania (2011–2014)

Senegal (2015)

Austria (2005–2020)

France (2001–2018)

N. Macedonia (2008–2019)

Serbia (2007–2009)

Botswana (2012–2015)

Georgia (2014–2016)

Poland (2001–2020)

Slovak Rep. (2011–2020)

Bulgaria (2015–2018)

Iceland (2002–2010)

Portugal (2001–2019)

Taiwan (2002–2020)

Croatia (2002–2020)

Ireland (2001–2019)

Romania (2007–2015)

 

Parliamentary democracies

Australia (2001–2019)

Estonia (2012–2017)

Jamaica (2005–2016)

Pakistan (2010–2019)

Barbados (2011–2013)

Germany (2001–2020)

Japan (2001–2019)

Spain (2001–2020)

Belgium (2001–2015)

Greece (2003–2020)

Latvia (2005–2020)

Sweden (2001–2020)

Belize (2014–2016)

Hungary (2001–2016)

Luxembourg (2013–2020)

Trinidad & Tobago (2010–2014)

Canada (2001–2020)

India (2001–2020)

Netherlands (2001–2020)

UK (2001–2020)

Czech Rep. (2006–2013)

Israel (2001–2020)

New Zealand (2001–2005)

Vanuatu (2010)

Denmark (2001–2014)

Italy (2001–2020)

Norway (2001–2020)

 

Civilian dictatorships

Algeria (2009–2013)

Cameroon (2014–2016)

Libya (2013)

Singapore (2001–2014)

Angola (2008–2020)

China (2002- 2019)

Madagascar (2017–2019)

South Africa (2001–2019)

Bangladesh (2011)

Ethiopia (2012)

Montenegro (2010)

Togo (2020)

Belarus (2019)

Iran (2008–2020)

Namibia (2012–2013)

Uganda (2003–2014)

Bosnia—Herzegovina (2008–2017)

Kazakhstan (2007–2020)

Russia (2002–2020)

Vietnam (2013–2017)

Military regimes

Egypt (2008–2020)

Sudan (2018)

Syria (2009)

Yemen (2009)

Monarch

Jordan (2004–2019)

Morocco (2009–2020)

Qatar (2014–2020)

Tonga (2009)

Kuwait (2020)

Oman (2019–2020)

Saudi Arabia (2009–2020)

UAE (2006–2020)

Countries with regime change during 2001–2020

Burkina Faso

Military (2014–2015)

Civilian Dictatorship (2016–2020)

Lebanon

Military (2009)

Civilian Dictatorship (2015–2018)

Malaysia

Civilian Dictatorship (2006)

Mixed Democracy (2009–2017)

Slovenia

Mixed Democracy (2002)

Parliamentary (2003–2020)

Thailand

Parliamentary (2002–2006, 2011–2013)

Military (2007, 2014–2018)

Tunisia

Military (2009–2010)

Presidential (2012–2015)

Turkey

Mixed Democracy (2006–2013)

Civilian Dictatorship (2016–2018)

Zambia

Civilian Dictatorship (2010)

Presidential (2012–2013)

  1. Dates in parentheses refer to early and latest years in the data set. Regime dates are for the current year and not lagged dates. In some cases, there were gaps in the data in intervening years and as a result, some country-year observations had to be dropped given the two-year lag structure used in the analysis.

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Goel, R.K., Nelson, M.A. Which political regimes foster entrepreneurship? An international examination. J Technol Transf 48, 126–146 (2023). https://doi.org/10.1007/s10961-021-09907-9

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