Formal institutions and the development of entrepreneurial activity – the contingent role of corruption in emerging economies

Abstract

© 2020, Emerald Publishing Limited. Purpose: The paper aims to analyse the interplay between formal and informal institutions' and their impact on entrepreneurship rates in emerging economies. Design/methodology/approach: This study expands previous research in examining the moderating effect of control of corruption on the relationship between formal institutions and the development of the entrepreneurial activity. The study utilizes longitudinal analyses of a dataset from 41 emerging economies over 11 years (2006–2016). Findings: Findings provided robust support for the study's hypotheses. The results suggested lower levels of corruption positively moderate the effects of a country's number of procedures and education and training on the rates of entrepreneurial activity, while negatively moderating the effects of firm-level technology absorption on the rates of entrepreneurial activity. Research limitations/implications: The study has considered only one particular aspect of high-growth entrepreneurship, which is newly registered firms with limited liability. Although newly registered firms are recognized as one of the critical drivers of entrepreneurial activity. Future research should seek to examine other aspects of growth-oriented entrepreneurship such as activities involving a high level of innovation, corporate entrepreneurship or technology developments. Practical implications: This study advanced the existing theories in the field of entrepreneurship and institutional economics as it merged the two theories as a driving framework in the design of the study in the context of emerging economies. Social implications: The study tested a theoretical model by expanding the number of emerging economies in the study and found comparable findings that explain factors that may influence the likelihood of individuals entering entrepreneurship. Originality/value: This article adds to the current literature as it highlights the importance of the interplay of formal and informal institutions in determining their impact on entrepreneurship rates in emerging economies. This is of particular importance to policy-makers, and the business world as the empirical results of this study show the benefits of control of corruption in boosting entrepreneurial rates in these economies, which strive for economic diversification in their developmental endeavours.