The Effect of Economic and Cultural Factors on Entrepreneurial Activity: An Approach through Frontier Production Models

Abstract

The objective of this paper is to analyse how the economic conditions and the cultural values of a country influence its level of entrepreneurial activity. To this end, panel data is utilised. An innovative approach is applied, which adapts itself to the fact that the cultural values remain fairly stable over time, while the economic conditions are changeable. Specifically, a stochastic frontier production model is set in which the changeable economic conditions determine the frontier (maximum) for the entrepreneurship rate of a country, while the stable prevailing cultural values explain the level of efficiency-inefficiency. Specifically, embeddedness is the cultural value that has the strongest relationship with the level of efficiency.