1 Executive summary</h5> Based on the eclectic theory of entrepreneurship, this article analyzes macro-level determinants of national rates of formal versus informal entrepreneurship. Our evaluation of the factors identified in this theory reveals a set of empirically-testable, higher-order determinants: economic opportunities, quality of governance, macro-level resources and abilities, performance-based culture and socially-supportive culture. The results of our analysis obtained through the PLS (partial least squares) approach to structural equation modeling contribute to the entrepreneurship literature by providing an empirically-supported model that shows how formal entrepreneurship and informal entrepreneurship are driven differently.</P>On the demand-side side, economic opportunities (which include GDP growth, share of the service sector in the economy, innovation and financial development) and the quality of governance (governance index, democracy index and ease of doing business) are found to encourage formal entrepreneurship and discourage informal entrepreneurship. This insight can explain the underlying reasons for discrepancies in previous studies. Specifically, studies with a focus on entrepreneurship in the formal sector find that good institutions and a high level of economic development and technology advancement are positively related to national rates of entrepreneurship. On the other hand, studies focusing on entrepreneurship in countries where informal commercial activities account for a
Journal of Business Venturing – Elsevier
Published: Jul 1, 2014
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