The link between entrepreneurship and informal investment: An international comparison

Abstract

This study explores the link between entrepreneurship and informal investment. Using Global Entrepreneurship Monitor data, we examine what types of individuals invest in new businesses. The results reveal that individuals who engage in entrepreneurial activity are, on average, three times more likely to invest in new businesses than those who do not. We also find that individuals with entrepreneurial networks are more likely to invest in new businesses. Moreover, we present estimation results for the odds ratio of business ownership/management and informal investment, as well as of entrepreneurial networks and informal investment, in each country. We find that the link between entrepreneurship and informal investment differs across countries. Specifically, while the proportion of individuals who start businesses or engage in informal investment in Japan is lower than in other countries, the relationship between entrepreneurial propensity and informal investment in Japan is the greatest among 30 Organisation for Economic Co-operation and Development countries, suggesting the presence of small-world phenomena in entrepreneurship in Japan.