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Twenty-five years of research on institutions, entrepreneurship, and economic growth: What has been learned?

Dr Sebastian Aparicio, Assistant Professor in Entrepreneurship at Durham University Business School, recently published a paper on this topic alongside colleagues and talks us through their findings.

Entrepreneurial activity has gained increasing relevance in the last decades not only in academia, but also in the public policy sphere. It has been largely demonstrated that entrepreneurship matters for economic growth. Among other reasons, that is why governments and public organisations are constantly creating strategies to encourage entrepreneurial activity across the society. 

Although there are countries historically characterised by an entrepreneurial culture, some others are achieving higher entrepreneurship rates thanks to different policies aimed to spur the entrepreneurial mind-set. In this regard, scholars in entrepreneurship research agree on two ideas. First, entrepreneurial activity is affected by institutions (i.e. “rules of the game”), which are divided in formal (laws, policies, etc.) and informal (culture, social norms, etc.). Second, entrepreneurship is positively related to economic outcomes (e.g. GDP, job creation, etc.). However, these two streams have been analysed in isolation so far.

In their paper, the authors see entrepreneurship as a common factor that helps to link institutions to economic growth. By conducting a systematic literature review over the last 25 years (1992–2016) of research, they identify those theories, methods and results in each one of the research streams. In terms of institutions and entrepreneurship, they find that formal factors have been more analysed in the literature than informal ones, despite that different scholars have shown that the latter have a higher effect on entrepreneurship than the former. Regarding entrepreneurial activity and economic growth, although there is plenty of literature, most of the academic articles have explored the traditional entrepreneurship in developed countries.

Based on the results, new avenues can emerge in the comprehension of institutions, entrepreneurship and economic growth as an integrative analysis. Future studies might be interested in exploring different institutional factors (particularly the informal ones) as those affecting entrepreneurial activity (e.g. green, social, female, immigrant entrepreneurship), which at the same time may serve to improve economic outcomes not only in terms of production, but also in terms of wellbeing, social mobility, etc. in both developed and developing countries. As the authors suggest, “not only is understanding both complex relationships and their possible sequence useful for planning strategies and public policies, but it is also helpful for advancing and providing new insights in these research fields, which could be complementary and interdisciplinary”. You can read the paper in full here.