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Institutional quality, conforming and evasive entrepreneurship

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Abstract

In this article, we unpack Baumol’s (J Polit Econ 98(5):893–921, 1990) theory of entrepreneurship’s outcomes (productive, unproductive, and destructive) in a framework of failing institutions, considering that entrepreneurship is instead first characterized by two non-mutually exclusive types of behavior (conforming versus evasive). We hypothesize that the evasive activity (firm-level corruption) is undertaken as a second-best response to poor institutional quality, supporting the conforming activity. Using instrumental variable panel regression in the context of Indonesia, we evidence the mediating effect of bribing on the relation between local institutional quality and new business density, thus unveiling the real effect of institutional quality on entrepreneurship.

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Notes

  1. Dutta and Sobel (2016) instrument endogenous corruption with its lagged values. We instead instrument corruption with institutional quality, thus accounting for a mediation and a causality between these two variables.

  2. Five-digit subsectors follow the ISIC classification. The country is administratively divided into provinces, each divided into districts, which are themselves groups of communities.

  3. Missing data for Firm date of birth prevented us from reproducing a similar analysis for 2000–2009.

  4. We calculate that about 25% of firms report zero bribe, and the share over value added is on average 0.26%.

  5. This measure of trust is the response to the statement “I trust people with the same ethnicity as mine more”, and we use the district-level average. Unfortunately, we cannot use this variable, as it is only available for 2007.

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Authors and Affiliations

  1. KEDGE Business School, Marseille, France

    Julien Hanoteau & Virginie Vial

  2. Aix-Marseille Univ., CNRS, EHESS, IRD, AMSE, Marseille, France

    Julien Hanoteau

  3. Institut d’Asie Orientale (IAO, UMR CNRS 5062), ENS Lyon, Lyon, France

    Virginie Vial

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  1. Julien Hanoteau
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Correspondence to Julien Hanoteau.

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Hanoteau, J., Vial, V. Institutional quality, conforming and evasive entrepreneurship. Eurasian Bus Rev 10, 97–121 (2020). https://doi.org/10.1007/s40821-020-00151-z

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