Institutional varieties and entrepreneurship: an empirical analysis

A growing body of literature on comparative international entrepreneurship has focussed on exploring the factors that explain differences in entrepreneurial activity across countries. In particular, the institutional environment is regarded as a crucial influence on this activity, yet there is less agreement about which institutions matter, and more importantly, in what ways do they matter. Much of the research focussed on explaining the influence of institutions on entrepreneurship has taken a specific and narrow approach to institutional theory. This views institutions as ‘converging’ creations which posit a theoretical ‘one-best-way’, largely seen as liberal and non-interventionist. This approach to institutional theory overlooks the nuanced diversity of the institutional environment which defines the architecture of capitalist economies. In order to develop a broader understanding of this phenomenon, this thesis utilises perspectives from comparative institutionalism. The intent of this research is to empirically understand institutional diversity across countries, and its potential impact on comparative international entrepreneurship. This study utilises a quantitative approach with two sequential steps. The first step comprises of a principal components analysis with the attempt to develop robust quantitative variables which proxy for a countries institutional context. A cluster analysis of these variables is further employed to provide an objective contextual taxonomy of institutions and ‘diversities of institutional systems’. This objective contextual taxonomy helps give legitimacy to such diversity approach. The variables here are then transformed for the second step, which utilises multivariate panel modelling. The overall aim of this step is to estimate various model specifications outlining potential statistical relationships and directions between institutional diversities and aggregate level of entrepreneurship. The results of this analysis present three key contributions. Firstly, that there exists rich institutional diversity between political economies, identified by nine taxonomies of countries across an optimum clustering of four ‘modes of capitalism’, defined by complementary variants across institutional sub-spheres. Secondly, the relationship between the degree of institutional coordination within the institutional complementarity format and the level of entrepreneurial activity is non-linear. Specifically, the relationship is quadratic and ‘U’ shaped. Where the institutional structure of the political economy allows for higher levels of market coordination or higher levels of strategic coordination, estimated entrepreneurship rates are higher than they are when there is more variation in the types of institutional complementarity present in the political economy. Thirdly, aggregate performance of entrepreneurship is moderated by the institutional configuration of the political economy. Institutional coherence identified by this perspective appear to offer general efficiencies. Therefore, these results suggest that institutional explanations of entrepreneurship can be explained by ‘equifinality’, in that a ‘perfect’ institutional setting does not exist.