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Business regulation, rule of law and formal entrepreneurship: evidence from developing countries

Business regulation, rule of law and formal entrepreneurship: evidence from developing countries The purpose of this paper is to examine the influence of formal rules such as business regulation and rule of law on the level of formal entrepreneurship in Latin America countries over time.Design/methodology/approachThe authors use the panel regression techniques to examine the influence of business regulation and rule of law on formal entrepreneurship. In particular, they implement together two alternative views of formal entrepreneurship suggested in the literature: the “dual” and “legalistic” view. At the empirical level, the “dual” definition corresponds to the business owners’ rate. As for the “legal” definition, it corresponds to the business registration rate. The evidence presented is based on two panels. The first panel covers the period 2004–2015, and the data set contains 180 observations in 18 countries. The second panel covers the period 2006–2015, and the data set contains 134 observations in 14 countries.FindingsThe impact of institutional variables on formal entrepreneurship depends on the definition employed: “dual” or “legal.” Thus, the results suggest that business owners’ rate is more substantial in Latin American countries that have weak property rights. Conversely, from a legal definition, the business registration rate is more significant in Latin American countries that have most secure property rights and fewer labor regulations. These contradictory results suggest that the legal definition of formal entrepreneurship, but not the dual definition, seems to be associated with the type of entrepreneurial activity that promotes economic growth and development.Research limitations/implicationsThe results support the importance of conducting analyzes that take into account the different types of entrepreneurial activities that are present in an economy, and in addition the relevance of understanding what each measure is capturing of the heterogeneous phenomenon of entrepreneurship.Practical implicationsThe results suggest that the entrepreneurship policy should focus on the quality of entrepreneurship, rather than merely seeking to increase the number of new businesses. Additionally, the results suggest that the legalistic definition of formal entrepreneurship is probably the most relevant for many policy issues.Originality/valueThe paper analyzes together two alternative views of formal entrepreneurship suggested in the literature: the “dual” and “legalistic” views. Also, the paper has used the Latinobarómetro data set, which has not been extensively used by scholars in the field of entrepreneurship and which could be useful for longitudinal research on entrepreneurial activity in Latin American countries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Enterpreneurship and Public Policy Emerald Publishing

Business regulation, rule of law and formal entrepreneurship: evidence from developing countries

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2045-2101
DOI
10.1108/jepp-03-2019-0019
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Abstract

The purpose of this paper is to examine the influence of formal rules such as business regulation and rule of law on the level of formal entrepreneurship in Latin America countries over time.Design/methodology/approachThe authors use the panel regression techniques to examine the influence of business regulation and rule of law on formal entrepreneurship. In particular, they implement together two alternative views of formal entrepreneurship suggested in the literature: the “dual” and “legalistic” view. At the empirical level, the “dual” definition corresponds to the business owners’ rate. As for the “legal” definition, it corresponds to the business registration rate. The evidence presented is based on two panels. The first panel covers the period 2004–2015, and the data set contains 180 observations in 18 countries. The second panel covers the period 2006–2015, and the data set contains 134 observations in 14 countries.FindingsThe impact of institutional variables on formal entrepreneurship depends on the definition employed: “dual” or “legal.” Thus, the results suggest that business owners’ rate is more substantial in Latin American countries that have weak property rights. Conversely, from a legal definition, the business registration rate is more significant in Latin American countries that have most secure property rights and fewer labor regulations. These contradictory results suggest that the legal definition of formal entrepreneurship, but not the dual definition, seems to be associated with the type of entrepreneurial activity that promotes economic growth and development.Research limitations/implicationsThe results support the importance of conducting analyzes that take into account the different types of entrepreneurial activities that are present in an economy, and in addition the relevance of understanding what each measure is capturing of the heterogeneous phenomenon of entrepreneurship.Practical implicationsThe results suggest that the entrepreneurship policy should focus on the quality of entrepreneurship, rather than merely seeking to increase the number of new businesses. Additionally, the results suggest that the legalistic definition of formal entrepreneurship is probably the most relevant for many policy issues.Originality/valueThe paper analyzes together two alternative views of formal entrepreneurship suggested in the literature: the “dual” and “legalistic” views. Also, the paper has used the Latinobarómetro data set, which has not been extensively used by scholars in the field of entrepreneurship and which could be useful for longitudinal research on entrepreneurial activity in Latin American countries.

Journal

Journal of Enterpreneurship and Public Policy – Emerald Publishing

Published: Sep 11, 2019

Keywords: Latin America; Panel data; Rule of law; Business regulation; Formal entrepreneurship

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