Abstract
This study investigates how national economic, social, and institutional conditions influence the overall rate of entrepreneurial activity. Using an integrated framework that draws on the Resource-Based View (RBV) and Transaction Cost Economics (TCE), the research analyzes ten macro-level variables. By examining a panel dataset spanning 70 countries over 17 years, the findings reveal that while economic growth and foreign direct investment support entrepreneurship, increased economic openness and higher consumption levels appear to hinder it. The study underscores that the availability of economic resources is a key driver for national entrepreneurship, whereas transaction costs imposed by institutional barriers are comparatively less decisive.
Introduction
In an era of deepening globalization and growing economic competition, entrepreneurship has emerged as a critical engine for innovation and economic development. Although research has traditionally focused on individual entrepreneurial characteristics and firm-level dynamics, the broader socio-economic environment of a country plays an equally important role. By comparing entrepreneurship across nations, this study aims to identify which macroeconomic factors are most influential in shaping national entrepreneurial activity and to offer insights for policy design.
Theoretical Framework and Hypothesis Development
Theoretical Background
The concept of entrepreneurship can be explored from multiple levels. At the individual level, it involves launching and managing a new venture; in contrast, country‐level entrepreneurship refers to the cumulative rate of new business formation within a nation over time. This research builds its framework on two complementary theories. The RBV highlights the importance of unique national resources such as human capital, technological infrastructure, and financial systems that create competitive advantages. Meanwhile, TCE focuses on the costs—both direct and indirect—inherent in starting and maintaining a business, including regulatory and bureaucratic obstacles.
Resource-Based Perspective
According to the RBV, the strength of a nation’s entrepreneurial activity is largely determined by its access to economic resources. A robust economy characterized by high GDP growth provides the capital, technological expertise, and skilled labor necessary to lower entry barriers for new businesses. Foreign investments, in particular, not only deliver financial resources but also transfer managerial skills and innovative practices that can greatly stimulate local entrepreneurship.
Transaction Cost Perspective
TCE, on the other hand, suggests that the ease of starting a business depends on the regulatory framework and administrative efficiency. High transaction costs—arising from lengthy procedures, high registration fees, or complicated legal requirements—can discourage prospective entrepreneurs. By evaluating these institutional factors alongside economic and social indicators, this study seeks a more complete understanding of the determinants of national entrepreneurship.
Selecting Macro-Level Determinants
Drawing on the literature, the study examines economic factors (including GDP growth, foreign direct investment, economic openness, and inflation), social factors (such as government spending on education, final consumption expenditure, and unemployment rates), and institutional factors (measured by the costs, procedural requirements, and time needed to register a business). For each variable, hypotheses are developed regarding their expected positive or negative influence on entrepreneurship at the national level.
Research Methodology
Data Collection and Sample
The analysis employs an unbalanced panel dataset compiled from two reputable sources: an international entrepreneurship monitoring system and a global financial database. Covering 70 countries over the period from 2003 to 2019, the data set comprises more than 600 country-year observations, representing a mix of developed and developing economies.
Measurement of Variables
The dependent variable is defined as the total early-stage entrepreneurial activity (TEA), which quantifies the percentage of the working-age population engaged in launching or managing a new business. The independent variables are grouped into three categories: economic (e.g., GDP growth, foreign direct investment, economic openness, inflation), social (government expenditure on education, final consumption expenditure, unemployment rate), and institutional (cost, number of procedures, and time required to register a new business).
Econometric Approach
To account for dynamics and potential endogeneity, the study utilizes a system Generalized Method of Moments (GMM) estimator. This method allows for the control of unobserved heterogeneity and ensures that lagged variables serve as valid instruments. Diagnostic tests confirm that the model is appropriately specified, with no significant issues related to serial correlation or instrument proliferation.
Research Findings and Discussion
Economic Factors
The empirical analysis confirms that economic growth is a significant positive determinant of national entrepreneurship. A higher rate of GDP growth is strongly associated with an increased rate of new business formation, reflecting a prospering economic climate. Similarly, foreign direct investment (FDI) exhibits a positive effect by enhancing the resource base and technological capabilities of domestic enterprises. In contrast, although economic openness might be expected to offer new market opportunities, the study finds that greater openness tends to reduce entrepreneurial activity—possibly due to intensified competition from established foreign firms. Moreover, inflation, as captured by the Consumer Price Index, does not show a statistically significant direct impact on entrepreneurship.
Social Factors
Within the social dimension, higher final consumption expenditure is linked to lower rates of entrepreneurship, which may be attributed to reduced household savings and a corresponding decline in available capital for new ventures. Public expenditure on education and unemployment rates, however, do not exhibit significant direct effects. This indicates that the relationship between education and entrepreneurship might be complex and could depend on additional mediating factors, while unemployment appears to have a nuanced influence that may balance necessity-driven entrepreneurship with reduced overall economic dynamism.
Institutional Factors
The institutional variables—the cost of business start-up procedures, the number of required registration steps, and the time taken to register a business—do not emerge as significant predictors of national entrepreneurship in this study. The findings suggest that many countries may have already succeeded in streamlining these processes, or that other factors such as resource availability and market conditions play a more dominant role in promoting entrepreneurial activity.
Conclusion and Policy Implications
Main Findings
The study concludes that among the macro-level determinants examined, economic factors offer the strongest explanation for variations in country-level entrepreneurship. Economic growth and foreign direct investment are key positive drivers, while heightened economic openness and increased consumer expenditure tend to suppress entrepreneurial entry. Institutional barriers, although theoretically relevant, appear to have a lesser impact in the current data environment.
Theoretical Implications
By integrating insights from the RBV and TCE, this research contributes to our understanding of how national resources and transaction costs jointly shape entrepreneurial ecosystems. The findings underscore that resource availability—reflected in a nation’s economic performance and its capacity to attract foreign investment—is critical for fostering new business creation.
Policy Recommendations
From a policy perspective, governments seeking to boost entrepreneurship should focus on stimulating economic growth and enhancing access to external investment capital. Measures such as establishing dedicated entrepreneurship funds, easing access to venture capital, and promoting efficient technology transfer can create an enabling environment for start-ups. In addition, while maintaining streamlined administrative procedures remains important, the emphasis should be on strengthening the economic foundations that support innovation and new business formation.
Limitations and Future Research
Although the study offers robust insights, limitations include its reliance on secondary datasets and an unbalanced panel structure. Future research should aim to incorporate primary data, extend the analysis to additional macro-level determinants such as cultural and innovation-related factors, and conduct region-specific assessments to develop tailored strategies that reflect local economic and institutional contexts.
Data Availability
The datasets used in this analysis were sourced from internationally recognized public databases. Detailed data and supporting materials are available upon request from the corresponding author.
References
For brevity, the full list of scholarly references supporting the theoretical and empirical analysis is available upon request in standard academic citation format.
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