Does Control of Corruption Matter for Entrepreneurship in Emerging Economies: Evidence from Post-Communist Countries

Abstract

Corruption has been shown to discourage entrepreneurship in both developed and developing countries. However, it is less clear to what extent corruption affects the development of institutions’ impact on entrepreneurial activity in the context of emerging economies, such as those in the post-communist countries. This study used Institutional Economics as a conceptual framework with the aim of analysing the moderating effect of control of corruption (informal institution) on the relationship between formal institutions (such as the number of procedures, education and training, access to finance, and technology absorption) and entrepreneurial activity. The study used panel data of 14 post-communist countries and different secondary databases from the years 2006-2014. The article has several implications from both theoretical perspectives (advancing the application of Institutional Economics for the study of entrepreneurship) and from the practical point of view (providing insights for governmental policies interested in fostering higher entrepreneurial levels).


Keywords: institutional economics, corruption, entrepreneurship, emerging economies

References
[1] Acemoglu, D., and Robinson, J. A. (2006), “Economic backwardness in political perspective”, American Political Science Review”, Vol. 100 No 1, pp. 115-131.

[2] Acs, Z. (2006), “How is entrepreneurship good for economic growth?”, Innovations, Vol. 1 No. 1, pp. 97-107.

[3] Acs, Z. J., and Correa, P. G. (2014), “Identifying the obstacles to high-Impact entrepreneurship in Latin America and the Caribbean”, The World Bank, pp. 1-32.

[4] Acs, Z.J., Desai, S. and Hessels, J. (2008a), “Entrepreneurship, economic development and institutions”, Small Business Economics, Vol. 31 No. 3, pp. 219-234.

[5] Acs, Z. J., Desai, S., and Klapper, L. F. (2008b), “What does “entrepreneurship” data really show?”, Small Business Economics, Vol. 31 No 3, pp. 265-281.

[6] Acs, Z. J., and Szerb, L. (2007), “Entrepreneurship, economic growth and public policy”, Small business economics, Vol. 28 No. 2-3, pp. 109-122.

[7] Acs, Z.J. and Szerb, L. (2010), “Global Entrepreneurship and the United States”, Small Business Administration, Washington, DC.

[8] Acs, Z.J., Autio, E. and Szerb, L. (2014a), “National systems of entrepreneurship: measurement issues and policy implications”, Research Policy, Vol. 43 No. 3, pp. 476-494.

[9] Acs, Z.J., Szerb, L. and Autio, E. (2014b), “The global entrepreneurship and development index”, in Lloyd, A. (Ed.), Global Entrepreneurship and Development Index 2014, The Global Entrepreneurship and Development Institute, Washington, DC, pp. 1-120.

[10] Ahlstrom, D., Bruton, G. D., and Yeh, K. S. (2008), “Private firms in China: Building legitimacy in an emerging economy”, Journal of world business, Vol. 43 No 4, pp. 385-399.

[11] Aidis, R., Estrin, S., and Mickiewicz, T. (2008), “Institutions and entrepreneurship development in Russia: A comparative perspective”, Journal of Business Venturing, Vol. 23 No. 6, pp. 656-672.

[12] Aidis, R., Estrin, S. and Mickiewicz, T.M. (2012), “Size matters: entrepreneurial entry and government”, Small Business Economics, Vol. 39 No. 1, pp. 119-139.

[13] Aidt, T. S. (2009), “Corruption, institutions, and economic development” Oxford Review of Economic Policy, Vol. 25 No. 2, pp. 271-291.

[14] Aiken, L.S. and West, S.G. (1991), “Multiple regression: Testing and interpreting interactions”, Sage, Newbury Park, CA.

[15] Álvarez, C. and Urbano, D. (2011), “Environmental factors and entrepreneurial activity in Latin America”, Academia. Revista Latinoamericana de Administración, No. 48, pp. 31-45, available at: https://papers. ssrn.com/sol3/papers.cfm?abstract_id=1974138

[16] Álvarez, C., Urbano, D. and Amorós, J.E. (2014), “GEM research: achievements and challenges”, Small Business Economics, Vol. 42 No. 3, pp. 445-465.

[17] Anokhin, S. and Schulze, W.S. (2009), “Entrepreneurship, innovation, and corruption”, Journal of Business Venturing, Vol. 24 No. 5, pp. 465-476.

[18] Aparicio, S., Urbano, D. and Audretsch, D. (2016), “Institutional factors, opportunity entrepreneurship and economic growth: panel data evidence”, Technological Forecasting and Social Change, Vol. 102 No. C, pp. 45-61.

[19] Audretsch, D. B., Bönte, W., & Keilbach, M. (2008), “Entrepreneurship capital and its impact on knowledge diffusion and economic performance”, Journal of business venturing, Vol. 23 No. 6, pp. 687-698.

[20] Audretsch, D. B., and Belitski, M. (2016), “Entrepreneurial ecosystems in cities: establishing the framework conditions”, The Journal of Technology Transfer, Vol. 42 No.5, pp. 1030-1051.

[21] Autio, E., and Acs, Z. (2010), “Intellectual property protection and the formation of entrepreneurial growth aspirations” Strategic Entrepreneurship Journal, Vol. 4 No. 3, pp. 234-251.

[22] Avnimelech, G., Zelekha, Y., and Sharabi, E. (2014), “The effect of corruption on entrepreneurship in developed vs non-developed countries”, International Journal of Entrepreneurial Behaviour & Research, Vol. 20 No. 3, pp. 237-262.

[23] Baumol, W.J. (1990), “Entrepreneurship: productive, unproductive, and destructive”, Journal of Political Economy, Vol. 98 No. 5, pp. 893-921.

[24] Baumol, W.J., Litan, R.E. and Schramm, C.J. (2007), Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity, Yale University Press, New Haven.

[25] Beck, T., Demirgüç-Kunt, A.S.L.I. and Maksimovic, V. (2005), “Financial and legal constraints to growth: does firm size matter?”, The Journal of Finance, Vol. 60 No. 1, pp. 137-177.

[26] Beck, T., Demirgüç-Kunt, A. and Maksimovic, V. (2008), “Financing patterns around the world: are small firms different?”, Journal of Financial Economics, Vol. 89 No. 3, pp. 467-487.

[27] Belitski, M., Chowdhury, F. and Desai, S. (2016), “Taxes, corruption, and entry”, Small Business Economics, 47(1), 201-216.

[28] Bjørnskov, C., and Foss, N. J. (2016). “Institutions, Entrepreneurship, and Economic Growth: What Do We Know and What Do We Still Need to Know?”, The Academy of Management Perspectives, Vol. 30 No. 3, pp. 292-315.

[29] Bowen, H.P. and De Clercq, D. (2008), “Institutional context and the allocation of entrepreneurial effort”, Journal of International Business Studies, Vol. 39 No. 4, pp. 747-767.

[30] Brancu, L., Guðmundsdóttir, S., Gligor, D., and Munteanu, V. (2015), “Is Culture a Moderator of Entrepreneurship Motivation? A Comparative Study of Romania and Iceland” Amfiteatru Economic, Vol. 17 No. 38, pp. 133-147.

[31] Bruton, G.D., Ahlstrom, D. and Obloj, K. (2008), “Entrepreneurship in emerging economies: where are we today and where should the research go in the future”, Entrepreneurship Theory and Practice, Vol. 32 No. 1, pp. 1-14.

[32] Bruton, G. D., Ahlstrom, D., and Puky, T. (2009), “Institutional differences and the development of entrepreneurial ventures: A comparison of the venture capital industries in Latin America and Asia”, Journal of International Business Studies, Vol. 40 No. 5, pp. 762-778.

[33] Bruton, G. D., Filatotchev, I., Si, S., and Wright, M. (2013), “Entrepreneurship and strategy in emerging economies”, Strategic Entrepreneurship Journal, Vol. 7 No. 3, pp. 169-180.

[34] Carlos Díaz Casero, J., Almodóvar González, M., de la Cruz Sánchez Escobedo, M., Coduras Martinez, A. and Hernández Mogollón, R. (2013), “Institutional variables, entrepreneurial activity and economic development”, Management Decision, Vol. 51 No. 2, pp. 281-305.

[35] Castaño, M.S., Méndez, M.T. and Galindo, M.Á. (2015), “The effect of social, cultural, and economic factors on entrepreneurship”, Journal of Business Research, Vol. 68 No. 7, pp. 1496-1500.

[36] Castaño-Martínez, M.S., Méndez-Picazo, M.T. and Galindo-Martín, M.Á. (2015), “Policies to promote entrepreneurial activity and economic performance”, Management Decision, Vol. 53 No. 9, pp. 2073- 2087.

[37] Chowdhury, F., Terjesen, S. and Audretsch, D. (2015), “Varieties of entrepreneurship: institutional drivers across entrepreneurial activity and country”, European Journal of Law and Economics, Vol. 40 No. 1, pp. 121-148.

[38] Danis, W. M., De Clercq, D., and Petricevic, O. (2011), “Are social networks more important for new business activity in emerging than developed economies? An empirical extension”, International Business Review, Vol. 20 No. 4, pp. 394-408.

[39] De Clercq, D., Danis, W.M. and Dakhli, M. (2010), “The moderating effect of institutional context on the relationship between associational activity and new business activity in emerging economies”, International Business Review, Vol. 19 No. 1, pp. 85-101.

[40] Dreher, A., and Gassebner, M. (2013), “Greasing the wheels? The impact of regulations and corruption on firm entry”, Public Choice, Vol. 155 No. 3, pp. 413-432.

[41] Driscoll, J.C. and Kraay, A.C. (1998), Consistent covariance matrix estimation with spatially dependent panel data, Review of economics and statistics, 80(4), 549-560.

[42] Dutta, N., and Sobel, R. (2016), “Does corruption ever help entrepreneurship?” Small Business Economics, Vol. 47 No. 1, pp. 179-199.

[43] El Harbi, S. and Anderson, A.R. (2010), “Institutions and the shaping of different forms of entrepreneurship”, The Journal of Socio-Economics, Vol. 39 No. 3, pp. 436-444.

[44] Estrin, S., Korosteleva, J. and Mickiewicz, T. (2013), “Which institutions encourage entrepreneurial growth aspirations?”, Journal of Business Venturing, Vol. 28 No. 4, pp. 564-580.

[45] Feige, E. L. (1997). “Underground activity and institutional change: Productive, protective and predatory behaviour in transition economies”, Transforming post-communist political economies, pp. 21-34. National Academy Press, Washington, D.C.

[46] Fernández-Serrano, J., and Liñán, F. (2014), “Culture and entrepreneurship: The case of Latin America”, Innovar, Vol. 24(SPE), 169-180.

[47] Fernández-Serrano, J. and Romero, I. (2014), “About the interactive influence of culture and regulatory barriers on entrepreneurial activity”, International Entrepreneurship and Management Journal, Vol. 10 No. 4, pp. 781-802.

[48] Fuentelsaz, L., González, C., Maícas, J.P. and Montero, J. (2015), “How different formal institutions affect opportunity and necessity entrepreneurship”, BRQ Business Research Quarterly, Vol. 18 No. 4, pp. 246-258.

[49] Ghura, H., Li, X., and Harraf, A. (2017), “Moderating relationship of institutions for opportunity entrepreneurship and economic development: Literature review and proposed conceptual framework”, World Journal of Entrepreneurship, Management and Sustainable Development, Vol. 13 No 4, pp. 350-374.

[50] Gnyawali, D.R. and Fogel, D.S. (1994), “Environments for entrepreneurship development: key dimensions and research implications”, Entrepreneurship Theory and Practice, Vol. 18 No. 4, p. 43.

[51] Hayton, J.C. and Cacciotti, G. (2013), “Is there an entrepreneurial culture? A review of empirical research”, Entrepreneurship & Regional Development, Vol. 25 Nos 9-10, pp. 708-731.

[52] Hoskisson, R. E., Eden, L., Lau, C. M., and Wright, M. (2000), “Strategy in emerging economies”, Academy of management journal, Vol. 43 No. 3, pp. 249-267.

[53] Jiménez, A., Palmero-Cámara, C., González-Santos, M.J., Gonzalez-Bernal, J. and Jiménez Eguizábal, J.A. (2015), “The impact of educational levels on formal and informal entrepreneurship”, BRQ Business Research Quarterly, Vol. 18 No. 3, pp. 204-212.

[54] Johnson, S., McMillan, J., & Woodruff, C. (2002), “Property rights and finance”, American Economic Review, Vol. 92 No.5, pp. 1335-1356.

[55] Klapper, L., Laeven, L., and Rajan, R. (2006), “Entry regulation as a barrier to entrepreneurship”, Journal of financial economics, Vol. 82 No. 3, pp. 591-629.

[56] Klapper, L., Amit, R. and Guillén, M.F. (2010), “Entrepreneurship and firm formation across countries”, in Lerner, J. and Schoar, A. (Eds), International Differences in Entrepreneurship, University of Chicago Press, Chicago, IL, pp. 129-158, available at: http://press.uchicago.edu/ucp/books/book/chicago/I/ bo8648214.html

[57] Klapper, L., and Love, I. (2010), “The impact of business environment reforms on new firm registration”, The World Bank, No. 5493, pp. 1-50.

[58] Kiss, A. N., Danis, W. M., and Cavusgil, S. T. (2012), “International entrepreneurship research in emerging economies: A critical review and research agenda”. Journal of Business Venturing, Vol. 27 No. 2, pp. 266-290.

[59] Korosteleva, J., and Mickiewicz, T. (2011), “Start-up financing in the age of globalization”, Emerging Markets Finance and Trade, Vol. 47 No. 3, pp. 23-49.

[60] La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (1999), “Corporate ownership around the world”, Journal of Finance, Vol. 54 No.2, pp. 471-517.

[61] Levie, J. and Autio, E. (2008), “A theoretical grounding and test of the GEM model”, Small Business Economics, Vol. 31 No. 3, pp. 235-263.

[62] Levie, J. and Autio, E. (2011), “Regulatory burden, rule of law, and entry of strategic entrepreneurs: an international panel study”, Journal of Management Studies, Vol. 48 No. 6, pp. 1392-1419.

[63] Manolova, T.S., Eunni, R.V. and Gyoshev, B.S. (2008), “Institutional environments for entrepreneurship: evidence from emerging economies in Eastern Europe”, Entrepreneurship Theory and Practice, Vol. 32 No. 1, pp. 203-218.

[64] Minniti, M. and Lévesque, M. (2010), “Entrepreneurial types and economic growth”, Journal of Business Venturing, 25(3), 305-314.

[65] Mehmetoglu, M. and Jakobsen, T.G. (2017), “Applied statistics using Stata: a guide for the social sciences”, Sage, London.

[66] Naudé, W. (2008), “Entrepreneurship in economic development”, World Institute for Development Economics Research, Research Paper 2008/20.

[67] Nofsinger, J. R., and Wang, W. (2011), “Determinants of start-up firm external financing worldwide” Journal of Banking and Finance, Vol. 35 No.9, pp. 2282-2294.

[68] North, D.C. (1990), Institutions, Institutional Change and Economic Performance, Cambridge University Press, New York, NY.

[69] North, D.C. (2005), Understanding the Process of Institutional Change, Princeton University Press, Princeton, NJ.

[70] Pathak, S., Xavier-Oliveira, E., and Laplume, A. O. (2015), “Entrepreneurship in transition economies: The role of corruption and individual attributes”, Journal of Balkan and Near Eastern Studies, Vol. 17 No. 4, pp. 427-446.

[71] Payne, G.T., Moore, C.B., Bell, R.G. and Zachary, M.A. (2013), “Signaling organizational virtue: an examination of virtue rhetoric, country-level corruption, and performance of foreign IPOs from emerging and developed economies”, Strategic Entrepreneurship Journal, Vol. 7 No. 3, pp. 230-251.

[72] Roman, A., Bilan, I. and Ciumaș, C. (2018), “What drives the creation of new businesses? A panel-data analysis for EU countries”, Emerging Markets Finance and Trade, 54(3), 508-536.

[73] Sambharya, R. and Musteen, M. (2014), “Institutional environment and entrepreneurship: an empirical study across countries”, Journal of International Entrepreneurship, Vol. 12 No. 4, pp. 314-330.

[74] Stenholm, P., Acs, Z.J. and Wuebker, R. (2013), “Exploring country-level institutional arrangements on the rate and type of entrepreneurial activity”, Journal of Business Venturing, Vol. 28 No. 1, pp. 176-193.

[75] Smallbone, D., and Welter, F. (2001), “The distinctiveness of entrepreneurship in transition economies”, Small business economics, Vol. 16 No. 4, pp. 249-262.

[76] Smallbone, D., Welter, F., and Ateljevic, J. (2014), “Entrepreneurship in emerging market economies: Contemporary issues and perspectives”, International Small Business Journal, Vol. 32 No. 2, pp. 113-116.

[77] Spence, M. (1973), “Job market signaling”, Quarterly Journal of Economics, Vol. 87, pp. 355–74.

[78] Spence, M. A. (1974), “Market Signaling: Informational Transfer in Hiring and Related Screening Processes”, Cambridge, MA: Harvard Business Press.

[79] Szerb, L., Rappai, G., Makra, Z., and Terjesen, S. (2007), “Informal investment in transition economies: Individual characteristics and clusters”, Small Business Economics, Vol. 28 No. 2, pp. 257-271.

[80] Tanzi, V. (1998), “Corruption around the world: causes, consequences, scope, and cures”, Staff Papers, Vol. 45 No. 4, pp. 559-594.

[81] Tonoyan, V., Strohmeyer, R., Habib, M., and Perlitz, M. (2010), “Corruption and entrepreneurship: How formal and informal institutions shape small firm behaviour in transition and mature market economies”, Entrepreneurship Theory and Practice, Vol. 34 No. 5, pp. 803-831.

[82] Turró, A., Urbano, D., & Peris-Ortiz, M. (2014), “Culture and innovation: The moderating effect of cultural values on corporate entrepreneurship”, Technological Forecasting and Social Change, Vol. 88, pp. 360-369.

[83] Urbano, D. and Alvarez, C. (2014), “Institutional dimensions and entrepreneurial activity: an international study”, Small Business Economics, Vol. 42 No. 4, pp. 703-716.

[84] Urbano, D., Aparicio, S. and Audretsch, D. (2018), “Twenty-five years of research on institutions, entrepreneurship, and economic growth: what has been learned?”, Small Business Economics, 1-29, https://doi.org/10.1007/s11187-018-0038-0.

[85] Valliere, D. and Peterson, R. (2009), “Entrepreneurship and economic growth: evidence from emerging and developed countries”, Entrepreneurship & Regional Development, Vol. 21 Nos 5-6, pp. 459-480.

[86] Van Auken, H.E., Neely, L. (1999), “Obstacles to business launch”, Journal of development Entrepreneurship, Vol. 4 No. 2, pp. 175-187.

[87] Wennekers, S., Van Wennekers, A., Thurik, R. and Reynolds, P. (2005), “Nascent entrepreneurship and the level of economic development”, Small Business Economics, Vol. 24 No. 3, pp. 293-309.

[88] Williamson, O.E. (2000), “The new institutional economics: taking stock, looking ahead”, Journal of Economic Literature, Vol. 38 No. 3, pp. 595-613.

[89] Wooldridge, J.M. (2012), “Introductory econometrics: A modern approach”. South Western, Cengage learning, USA.