REGULATORY QUALITY AND ENTREPRENEURSHIP IN DEVELOPING COUNTRIES
DOI:
https://doi.org/10.35631/IJEMP.934043Keywords:
Developing Countries, Entrepreneurship, GMM, Regulatory Quality, RegulationAbstract
Entrepreneurship is an important driver of economic development, yet entrepreneurial activity remains constrained in many developing countries, partly due to regulatory environments that can impede business formation and growth. This study uses panel data from 2008 to 2016 to investigate the relationship between regulatory quality and entrepreneurship in 48 developing countries. Two complementary measures are used to capture entrepreneurship (1) the Global Entrepreneurship Index (GEI), and (2) New Business Density (NBD). Meanwhile, regulatory quality is evaluated using the World Bank’s Worldwide Governance Indicators (WGI), which are complemented by measures of business start-up procedures, time required, and business legislation. To address potential endogeneity, a two-step Generalised Method of Moments (GMM) estimator is used. The findings indicate that better regulatory quality is significantly associated with higher levels of entrepreneurial activity, underscoring the importance of an enabling regulatory environment in developing economies. The findings also indicate that simplifying business procedures, shortening the time it takes to establish a business, and strengthening legislation that encourages firm formation can all help to boost entrepreneurial activity. This study contributes to the entrepreneurship institution literature by providing cross-country evidence on the role of regulatory quality in shaping entrepreneurial activity in developing economies and offers policy insights for establishing more efficient and business-friendly regulatory environments.
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