Working Paper: CEPR ID: DP7278
Authors: Ruta Aidis; Saul Estrin; Tomasz Mickiewicz
Abstract: In this paper we explore the relationship between the individual decision to become an entrepreneur and the institutional context. We pinpoint the critical roles of property rights and the size of the state sector for entrepreneurial activity and test the relationships empirically by combining country-level institutional indicators for 44 countries with working age population survey data taken from the Global Enterprise Monitor. A methodological contribution is the use of factor analysis to reduce the statistical problems with the array of highly collinear institutional indicators. We find that the key institutional features that enhance entrepreneurial activity are indeed the rule of law and limits to the state sector. However, these results are sensitive to the level of development.
Keywords: Access to finance; Entrepreneurship; Property rights
JEL Codes: L26; P14; P37; P51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rule of law (K40) | entrepreneurial entry (L26) |
| size of the state sector (H11) | entrepreneurial entry (L26) |
| stronger property rights (P14) | entrepreneurial activity (L26) |
| development stage (L26) | significance of rule of law (K40) |
| size of the state sector (H11) | entrepreneurial activity (L26) |
| per capita income (D31) | negative marginal effect on entrepreneurial entry (L26) |