The impact of the institutional environment on entrepreneurial activity: an analysis of developing and developed countries

Abstract

PurposeEntrepreneurship can be understood as a systemic phenomenon, thus relying on sets of influential factors associated with socioeconomic contexts. Institutional conditions play a pivotal role in this regard, affecting the allocation of entrepreneurial efforts. The goal of this research is to verify to what extent do the pillars of Countries' Institutional Profiles – regulatory, cognitive and normative – affect both the prevalence and quality of entrepreneurship, assessing the differences between developing and developed countries both in total entrepreneurial activity and in the following qualitative frames: innovation rate, high job creation expectations and motivational index.Design/methodology/approachThe authors’ assessment uses data from the Global Entrepreneurship Monitor (GEM) with a longitudinal approach for 112 countries over the period 2003–2019. Dynamic panel data regressions are applied.FindingsBy comparing developing and developed countries, findings highlight that institutional effects are heterogeneous among developing and developed countries, with informal institutions being more relevant for developing countries than formal ones. Also, using a broad range of institutional indicators, the authors’ assessment indicated that the association between institutional conditions and productive entrepreneurship seems to be far more intricate than argued by theoretical literature.Practical implicationsThe authors’ findings indicate the need for developing countries to address formal institutional voids in order to generate more effective conditions for productive entrepreneurship to emerge. Following prior literature, this can have systemic impacts on trajectories for economic growth and development.Originality/valueThe originality of this research consists in using a longitudinal and integrative approach to compare institutional effects on different types of entrepreneurship, as well as comparing these effects in countries at different stages of development.