Institutional context and the allocation of entrepreneurial effort
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Institutional context and the allocation of entrepreneurial effort Harry P Bowen1 and Dirk De Clercq2 1 McColl School of Business, Queens University of Charlotte, Charlotte, USA; 2Brock University, St Catharines, Ontario, Canada
Correspondence: H P Bowen, McColl School of Business, Queens University of Charlotte, 1900 Selwyn Avenue, Charlotte, NC 28274, USA. Tel: þ 1 704 688 2707; Fax: þ 1 704 337 2403; E-mail: [email protected]
Abstract The type of activity in which entrepreneurs engage is likely to influence the potential contribution of entrepreneurship to economic growth and prosperity. Yet the entrepreneurship literature has focused largely on identifying the determinants of the level, rather than the type, of entrepreneurial activity. In this paper we hypothesize that a country’s institutional environment will influence the allocation of entrepreneurial effort, and in particular will influence the extent to which entrepreneurial effort is directed toward high-growth activities. We test our hypotheses using data on 40 countries over the period 2002–2004. We find that the allocation of entrepreneurial effort toward high-growth activities is positively related to a country’s financial and educational activities targeted at entrepreneurship, and is negatively related to a country’s level of corruption. Our study is the first to provide empirical evidence that institutional characteristics significantly influence the allocation of entrepreneurial effort, and it is therefore the first to identify an empirically important channel through which a nation’s institutions may contribute to economic growth. Journal of International Business Studies (2008) 39, 747–767. doi:10.1057/palgrave.jibs.8400343 Keywords: allocation; entrepreneurship; institutions; national business systems
Received: 16 March 2005 Revised: 27 December 2006 Accepted: 9 May 2007 Online publication date: 20 December 2007
INTRODUCTION Understanding the role of entrepreneurs in creating economic prosperity has a long history in the academic literature (e.g., Kirzner, 1973; Leff, 1979; Schumpeter, 1961). In this regard, research has identified entrepreneurial activity as an important driver of economic growth (Ericson & Pakes, 1995; Hopenhayn, 1992; Klepper, 1996; Thurik & Wennekers, 2004; van Stel, Carree, & Thurik, 2005; Wennekers & Thurik, 1999); in turn, this has led to a stream of research that seeks to understand the antecedents of entrepreneurship and, in particular, the factors that may explain the level of entrepreneurial activity (as measured by the number of self-employed persons or the rate of new business start-ups) within and across countries (e.g., see Parker (2004) for a recent review). At the micro level, researchers have used occupational choice models to try to understand why individuals choose self-employment (entrepreneurship) instead of paid employment (Blanchflower & Oswald, 1998; De Wit, 1993; Kihlstrom & Laffont, 1979; van Praag, 1999). A
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