Regulation and entrepreneurial intention: cross-country evidence

Entrepreneurship, along with its effect on economic growth, has been a major topic of research for quite some time now. However, none of these studies employs the use of entrepreneurial intention, a key indicator of latent entrepreneurs, as a measure of entrepreneurship. Till now, some small-scale studies have been done using survey data, with results indicating that external entrepreneurial environment affects entrepreneurial intention. A handful of studies have also looked at the linkages between economic freedom and entrepreneurial activities. The paper aims to discuss this issue.

Using a panel data setting, this paper investigates the effects of economic freedom, especially regulation, on entrepreneurial intention. The empirical analysis uses data for 79 countries from 2001 to 2012.

The findings suggest that stricter credit market regulation reduces entrepreneurial intention whereas more stringent labor regulations restricts job availability and thereby encourage more people to take up entrepreneurship as a career choice.

The entrepreneurial intention data available from GEM is a highly unbalanced data and the data also does not differentiate between latent entrepreneurship in agricultural and non-agricultural sectors.

Future research should focus more on latent entrepreneurship which is a rough estimate of future entrepreneurs.

Entrepreneurship acts as a channel to improve economic growth by creating more jobs and the institutional qualities might act as a barrier for aspiring entrepreneurs to take up entrepreneurship as their career choices in developing countries.

This study has a twofold contribution in the literature. First, it is the foremost large scale study that deals with entrepreneurial intention using secondary data from Global Economic Monitor (GEM) report. Second, this study explores the linkages between economic freedom index and entrepreneurial intention.