Formal and informal institutional effects on entrepreneurship: a synthesis of nation‐level research

Abstract

PurposeThe purpose of this paper is to provide an overview and synthesis of the extant literature in entrepreneurship by utilizing an uncommon and unique lens. The lens focuses on studies that explore the effects of formal (social institutions) and informal (national culture) institutional factors on entrepreneurship at the national level.Design/methodology/approachThe design is a narrative literature overview of research published in peer reviewed journals in business and related fields from 1980 to 2009. North's classification of formal and informal institutions provides the structural framework. The overview includes salient published articles that empirically assessed the effect of at least one variable of the institutional context on entrepreneurship. The paper is organized as follows. After setting the context, legitimacy, and validity of contextual research in the entrepreneurship field in general, it reviews relevant research, focusing on the formal and informal institutional factors that affect entrepreneurship.FindingsThe review highlights the complex nature of entrepreneurship. Both formal and informal institutional factors affect entrepreneurship at multiple levels.Research limitations/implicationsThe review is important as it synthesizes the results of published research and offers a starting point to understand the effect of macro contextual factors on entrepreneurship. It is also timely, as entrepreneurship plays a significant role in the economic well being of a nation, and many governments are actively seeking to increase entrepreneurial activity.Practical implicationsPolicy makers can further entrepreneurship by understanding the role played by the institutional context. Applying appropriate institutional incentives is instrumental in enabling entrepreneurs in a more direct and effective manner.Originality/valueThe paper provides a new synthesis of formal and informal institutional effects on entrepreneurship at the nation‐level. As such, it goes beyond prior culture based reviews, and add to the understanding of macro nation effects of institutions on entrepreneurship.