Cross-country Entrepreneurship: The Interaction between Economic Development and Institutions

Abstract

This paper examines the variations in country-level entrepreneurship rates due to the interplay between economic development, government regulations, and national culture. Since economic development represents abundant resources and opportunities for potential entrepreneurs, we argue for an overall positive trend between economic development and entrepreneurial activity. However, we could not uphold the idea that higher economic development levels mean higher entrepreneurship rates. We constructed a panel dataset from the Global Entrepreneurship Monitor and World Bank Group Entrepreneurship Surveys on 57 countries and found that a country’s entrepreneurship rate increases only moderately despite market-oriented regulations when the national cultural orientation towards low self-determination levels exists. Thus, economic development does not relate to entrepreneurship in the same way in countries with different institutional structures. In examining the complex interaction between economic development, government regulations, and national culture, we offer insights on the interaction between the underlying opportunities, formal incentives, and societal legitimacy required to start businesses.