Institutional Schisms: The Impact of Intergovernmental Organizations on Entrepreneurship

Abstract

In times of anti-globalization movements, we study how intergovernmental organizations (IGOs), as the epitome of globalization believes, impact entrepreneurship in countries with different development levels. More specifically, we introduce the novel concept of institutional schisms, as the misalignment of national institutions and supranational institutions, to the concept of formal and informal entrepreneurship in least developed, emerging, and highly developed countries. We argue that least developed countries experience minimal institutional schisms, since their existing institutions are nascent and can be influenced heavily by IGOs promoting pro-market reforms. Highly developed countries, too, experience less severe institutional schisms, since these countries often have the most influence over the creation in the supranational institutions. However, emerging markets, which have semi-formed institutions, yet do not influence the supranational institutions, experience the most severe institutional schisms. Through an examination of 272 country-year panel observations across 68 countries from 2000 to 2011, we find that the influence of IGOs on entrepreneurial activities differs among countries with different levels of development. We find that IGOs promote formal entrepreneurship while hindering informal entrepreneurship in least developed countries, given the limited institutional schism experienced in these countries. These mechanisms do not hold in emerging countries with high institutional schisms where we find the reduction of formal entrepreneurship, as a result of competing national and supranational institutions. Surprisingly, the type of IGO (e.g. social, political, or economic) has no bearing on the results. Our analysis is based on a novel combination of regime theory and institutional theory, applied to entrepreneurship literature.