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Licensed Unlicensed Requires Authentication Published by De Gruyter October 26, 2018

The Determinants of Entrepreneurship at the Country Level: A Panel Data Approach

Gonçalo Rodrigues Brás and Elias Soukiazis

Abstract

The aim of this study is to analyze the impact of a variety of factors on the total entrepreneurial activity rate (TEA). A panel data approach of 26 developed countries was used to evaluate the simultaneous influence of the factors on TEA (2004–2011). Our findings show an inverse relationship between TEA and the initial capital effort; a direct relation between TEA, monetary freedom, investment freedom, financial market development and education; and a nonlinear concave relationship between TEA and the GDP per capita. The dynamic estimation approach shows a high speed of adjustment between the actual and desired rate of entrepreneurship. Overall, the main findings clarify which potential determinants have a real impact on entrepreneurial activity. Our contribution aims to help economic policymakers in developed countries to gain awareness of the main determinants of entrepreneurial activity at country level and thus to enable better decisions.

JEL Classification: L26; M13; C31

Acknowledgements

Gonçalo Brás would like to express his gratitude to the University of South Wales (Newport City Campus) for offering him first-class facilities during the research work. The author would also like to thank all the members of staff at Centre for Research in Entrepreneurship and Marketing, particularly to Professor Jonathan Deacon, Ahmad Khraiwish and Ahmed Abdullah. Finally, both authors would like to thank the anonymous reviewers for their valuable comments and suggestions to improve the paper.

Appendix

A Possible explanatory variables

Variables included in the study

Nature of the variableVariable nameSource
Competitiveness variablesInstitutionsGlobal Competitiveness Report – World Economic Forum (Schwab 2011)
Infrastructure
Macroeconomic environment
Health and primary education
Higher education and training
Goods market efficiency
Labor market efficiency
Financial market development
Technological readiness
Market size
Business sophistication
Innovation
Economic – formal factorsStarting a BusinessDoing Business – The World Bank (2011)
Dealing with Construction Permits
Getting Electricity
Registering Property
Getting Credit
Protecting Investors
Paying Taxes
Trading Across Borders
Enforcing Contracts
Resolving Insolvency
Economic – informal variablesProperty RightsIndex of Economic Freedom – The Heritage Foundation

(Miller and Holmes 2010)
Freedom from Corruption
Fiscal Freedom
Government Spending
Business Freedom
Monetary Freedom
Investment Freedom
Financial Freedom
Trade Freedom
Labor freedom
Voice and AccountabilityWorld Governance Indicators (2011)
Political Stability and Absence of Violence
Government Effectiveness
Regulatory Quality
Rule of Law
Control of Corruption
Other financial and economic variablesInvestment (% GDP)International Monetary Fund (2011)
GDP per capita in USD
Unemployment Rate
Foreign direct Investment in USDThe World Bank (2011)
National Savings (% GDP)
Tax Revenue (% GDP)
Credit to the private sector (% GDP)
Sociocultural variablesEducation indexInternational Human Development Indicators (Klugman 2011)
Human development index
Income Gini index

  1. Source: Compiled by the authors.

B Variance inflation factors

Detection of multicollinearity

VariablesVIF1/VIF
Paid-in minimum capital1.0600.943
Monetary freedom1.2090.827
8th Pillar: financial market development1.2900.775
Education index1001.0150.985
Investment freedom1.3680.731

  1. Source: Compiled by the authors.

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Published Online: 2018-10-26

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