Capital is not enough: opportunity entrepreneurship and formal institutions
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We examine how economic institutions, measured by the Economic Freedom of the World (EFW) index, affect the relationship between capital—human, social, and financial—and opportunity-motivated entrepreneurship (OME). To do this, we develop a multi-level model that connects theories of human and social capital at the micro-level to institutional theories at the macro-level. Using data from the Global Entrepreneurship Monitor (GEM), we then test the predictions of our model and find evidence that economic institutions play a crucial role in the relationship between these three distinct types of capital and OME. Our results are somewhat counter-intuitive—as the quality of the institutional environment improves, human and financial capitals become less important determinants of entrepreneurship while the relationship between social capital and entrepreneurship substantially strengthens.
KeywordsEconomic freedom Entrepreneurship Financial capital Human capital Institutions Social capital
Global Entrepreneurship Monitor
Total early-stage entrepreneurial activity
Economic freedom (Fraser Institute)
- Human capital
- Financial capital
- Social capital
Ties with other entrepreneurs
JEL classificationE22 J24 L14 L26 M13
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