Institutions and entrepreneurship: Empirical evidence for OECD countries

Abstract

Objective: The objective of the article is to test the bidirectional association of institutions and entrepreneurship in 19 OECD countries over the period of 2014-2016.

Research Design & Methods: Most of the previous studies emphasise the role of institutions in entrepreneurial activity, while ignoring the role of entrepreneurship in the building of institutions. We estimate how institutions and entrepreneurship relate to each other and contribute to economic growth. For the estimation, we apply the structural equation modelling (SEM) with panel data.

Findings: Estimated results show that the regulatory dimension of institutions and entrepreneurship have a strong bidirectional relationship – as we expected – while the normative dimension of institutions and entrepreneurship have a unidirectional association. These two interrelated factors stimulate economic growth.

Implications & Recommendations: Policymakers should create a more friendly regulatory environment for entrepreneurship to flourish. In this process, institutional entrepreneurs also play an important role.

Contribution & Value Added: There is a need for research on the bilateral relationship between institutions and entrepreneurship. Most previous articles consider the effect that is transmitted from institutions to entrepreneurship. However, there exists a two-way causal relationship between institutions and entrepreneurship that is worth exploring. In this regard, the greatest contribution of this article is that it is one of the first empirical works devoted to testing the two-way causal relationship between institutions and entrepreneurship.

Keywords

Institutions, entrepreneurship, human capital, economic growth, OECD

Author Biography

Latif Khalilov

PhD in Economics (2020, Pusan National University, Busan, Republic of Korea). His research interests include economic growth and development, human capital, and technology adoption.

Correspondence to: Latif Khalilov, PhD, Dalhousie University, Faculty of Science, Department of Economics, 6214 University Avenue, PO BOX 15000, Halifax, NS, B3H 4R2, Canada, e-mail: lt290876@dal.ca; latif0983@gmail.com

Chae-Deug Yi

PhD in Economics (1993, The Ohio State University: Columbus, OH, US). He is Professor of Economics at the Department of International Trade, Pusan National University. His research interest includes international trade, international finance, and econometrics.

Correspondence to: Prof. Chae-Deug Yi, PhD, Pusan National University, College of Economics and International Trade, Department of International Trade, 2, Busandaehak-ro 63beon-gil, Geumjeong-gu, Busan, 46241, Republic of Korea, e-mail: givethanks@pusan.ac.kr