The effects of financial inclusion and the business environment in spurring the creation of early-stage firms and supporting established firms

Abstract

This study investigates the role of financial inclusion and the institutional environment in promoting entrepreneurship. Using the panel vector autoregressive model for a sample of 43 countries over the period from 2001 to 2018, we find that both financial inclusion and the institutional environment positively affect early-stage and established firms. In particular, our results reveal that basic financial products are important to stimulate the creation of early-stage firms, whereas access to credit supports established firms’ viability. Our findings also indicate that lower business regulatory, tax and bureaucracy burdens; better access to commercial infrastructure; ease of entry to markets and government programs are essential for developing entrepreneurship. In particular, one of the most important implications of our findings is the vital role that government programs play in supporting entrepreneurship. Accordingly, several policies targeting promotion of entrepreneurship have been proposed and discussed.