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Entrepreneurship. How important are institutions and culturally-based prior beliefs?

Ferrante, Francesco and Ruiu, Gabiele (2014): Entrepreneurship. How important are institutions and culturally-based prior beliefs?

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Abstract

Although there is still no consensus on the causes of large differences in income per capita across countries, a growing literature considers culturally-based beliefs and institutions as main drivers of the latter differences (Guiso et al. 2006; Tabellini 2010). The intuition is that institutions and beliefs affect the incentive to accumulate human and physical capital. Other strands of literature stress that the supply of entrepreneurship is a fundamental ingredient of economic growth and job creation. In this paper, we argue that the two views should be reconciled on the basis of the following arguments: a) occupational choices and the decision to accumulate human capital are affected by cultural and institutional factors; b) occupational choices are the main tool to allocate human capital within societies; c) entrepreneurs govern the allocation of resources in the economy, including the human resources. Confirming our hypothesis, our empirical analysis show that cultural factors matter and fatalism exerts a particularly negative effect on opportunity perception and on opportunity driven entrepreneurship. For what regards institutional variables, three interesting and somehow non conventional results emerge from the analysis. First, low start-up cost are particular favorable for necessity driven entrepreneurship but not for the opportunity driven ones. Second, labor market flexibility yields a lower probability of being an entrepreneur and this results holds for both necessity and opportunity driven entrepreneurs. Third, the more burdensome the administrative requirement (permits, regulations, reporting) in entrepreneurial activity, the lower the probability of being an opportunity driven entrepreneur. On the whole, our results yield some policy relevant implications: a) culturally-based beliefs matter for entrepreneurship and fatalism is more important than trust in others; b) education can affect people’s fatalism; c) entrepreneurial education can be an important tool for fostering good quality entrepreneurship, i.e. opportunity driven entrepreneurship; c) institutions matter for entrepreneurship and growth but, somehow, in unconventional ways.

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