• The results reveal that government effectiveness is negatively related to total entrepreneurial activity. • The introduction of political freedom as a mediator between government effectiveness and entrepreneurship yields a positive relationship. • Religiosity moderates the indirect effect of government effectiveness on total entrepreneurial activity through political freedom. • The indirect effect will be stronger under low levels of religiosity than under high levels of religiosity. Given the ongoing debate on the relationship between institutions and entrepreneurship, this study aims to better understand the joint effects of two country-level formal institutions, government effectiveness and political freedom, and whether the informal institution of religiosity moderates this relationship. To achieve this goal, the current study used multiple datasets, including the Global Entrepreneurship Monitor (GEM), World Governance Indicators (WGIs), and the WIN-Gallup International Global Index of Religiosity and Atheism. The data cover 85 countries from 2010 to 2017. The results suggest that the rate of entrepreneurial activity across nations is shaped by the interplay between formal and informal institutions.
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