Early Entrepreneurship Entry and Institutional Rigidities in Emerging Market Economies: Evidence from the Global Entrepreneurship Monitor

Variation in the effectiveness of local economic institutions is one of the most important reasons behind different levels of economic development in countries around the world. This chapter investigates how different types of institutional rigidities affect early entrepreneurship entry in emerging market economies. Emerging economies are characterized with low to moderate GDP per capita, high GDP growth rates, dynamic consumer markets, increased competition levels, underdeveloped financial markets, predominance of state-owned enterprises, policies for active reduction of trade barriers, and an increased integration into the global economy. The empirical analysis is based on a multilevel logit model and nascent entrepreneurship entry data from the Global Entrepreneurship Monitor for 20 emerging economies from 2000 to 2017. The institutional rigidity indices used in the study are from the Economic Freedom of the World data set. We focus on state ownership of assets, property rights protection, tariffs, capital and people movement control, credit market regulations, administrative requirements, bureaucracy costs and bribes and favoritism. The results indicate that better functioning capital markets and relaxed trade barriers have a positive effect on nascent entrepreneurs. The effect of administrative requirements and bureaucracy on the propensity to become a nascent entrepreneur is insignificant. This could be explained with entrepreneurs easily moving to the informal sector to avoid dealing with regulations. Higher prevalence of state ownership positively affects the propensity to become a nascent entrepreneur. Lastly, we provide a brief discussion on policies that can improve nascent entrepreneurial activities within a nation.