Article

The Plight of Underdeveloped Countries

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Abstract

Institutionally dependent payoffs determine the direction of entrepreneurial alertness and efforts. In order to understand the plight of developing countries, it is critical to understand that it is not a lack of entrepreneurship that is the problem, but rather the institutional context directing entrepreneurial activities toward perverse ends. Specifically, some institutional regimes channel entrepreneurial activity into economically destructive avenues, while other frameworks direct this activity in a way that creates wealth.

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... Despite a large and engaging literature extolling productive entrepreneurship and its positive effects on economic growth, innovation and job creation, there is a deficit of research about evasive entrepreneurship and its consequences. Boettke and Coyne [1], Coyne and Leeson [2] and Elert and Henrekson [3] introduced the concept of evasive entrepreneurship to capture entrepreneurial practices aimed at circumventing existing institutional framework in different economies. Elert and Henrekson [3] characterize acts of evasive entrepreneurship as productive, unproductive, or destructive-advancing prior seminal work by Baumol [4]. ...
... There is a paucity of market-specific empirical research on the nexus of evasive entrepreneurship and institutional context [2,3,9]-and, to our knowledge, no empirical link between institutional constraints, evasive and exploitative behavior by entrepreneurs and firm performance, although there is some evidence that higher performance for entrepreneurs is linked to being more ethical and productive in general [17,18]. This gap in the literature has further motivated our investigation of evasive entrepreneurship-specifically manifested as bribery and tax evasion − by founders in an emerging economy. ...
... By adopting this view, we define evasive entrepreneurship as the exercise of agency to circumvent or exploit institutional impediments to make a profit. Examples of evasive behavior include tax evasion and using bribe payment to circumvent cumbersome regulation and bureaucratic demands on business operations [2,7]. ...
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Evasive entrepreneurship (circumvention and exploitation of institutions by entrepreneurs) is a prevalent practice in many developing economies. Extant literature on the topic falls short of providing adequate theories to explain its triggers, mechanisms, and consequences. Leveraging extensive survey data from the World Bank, we used structural equation modeling to examine the relationship between evasive entrepreneurial behavior—tax evasion and bribery—and the relative payoff of such practices. Of the 2599 Nigerian entrepreneurs in our sample, the majority admitted to engaging in evasive entrepreneurship. The data suggest that institutional factors thought to constrain entrepreneurship in emerging markets are counter-intuitively perceived by founders as opportunities to earn large rents and improve firm performance. Our results emphasize the urgent need to eliminate institutional constraints that paradoxically enable the growth of evasive entrepreneurship in emerging economies. Our results also suggest that prevailing local conventions involving evasive behavior may motivate nascent entrepreneurs to imitate bribery and tax evasion, normalizing malfeasance as ‘best practice.’
... Various studies analysed the effects the business environment has on entrepreneurship from the political, legal and economic perspective (Baumol, 1990;Coyne and Leeson, 2004), socio-cultural perspective (Autio et al., 2013;Thornton et al., 2011;Kwon et al., 2013;Sengupta, 2010), natural environment perspective (Crowe, 2008), and technology perspective (Saxenian, 1978). Through Figure 1, the macro and micro-environmental forces and factors as constituting the entrepreneurial ecosystem are presented. ...
... Political, legal and regulatory institutions direct how business and entrepreneurship activities are conducted in an economy. Of interest in explaining the factors are the discussions by Baumol (1990) and Coyne and Leeson (2004) on the effects of political and legal frameworks and how changes in these affect the allocation of entrepreneurship behaviour towards productive, unproductive or destructive activities. Baumol (1993) defined productive entrepreneurship as any entrepreneurial activities that contribute directly or indirectly to the net output of the economy or to the capacity to produce additional output (p.30). ...
... He provided historical accounts of situations across time and space that provided higher pay-offs away from entrepreneurship and thereby determined the level of entrepreneurship behaviour in the economy. Coyne and Leeson (2004) supported the line of reasoning with their noting that lack of entrepreneurship in an economy is due to lack of profit opportunities tied to activities that yield economic growth. The political, legal and regulatory frameworks and institutions structure the rules of the game in an economy. ...
Article
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Pro-growth Local Economic Development is an approach recommended to developing countries fighting to eradicate widespread poverty in Southern Africa. Entrepreneurship is a key construct under pro-growth approaches. However, other studies found that its effectiveness is dependent on the stage of economic development of a country such that entrepreneurship does not effect economic growth in low income countries but in high income countries. Therefore the factors influencing productive entrepreneurships have been of interest to scholars to inform policy for the development of entrepreneurship which remains a key area of focus in national development plans of many developing countries. An analysis of literature was conducted on the ecosystem perspective of entrepreneurship and it revealed that entrepreneurship can influence economic growth when the requisite key resources and key stakeholders' functionality are developed in a balanced way. Local territories that adopt pro-growth approaches require: effective political, legal, regulatory and economic frameworks that enable higher pay offs from entrepreneurship; policies for the development of financial, physical, human, knowledge and natural capital as well as policies for attracting or supporting key stakeholders mainly the ambitious entrepreneurial class, who are able to develop productive growth oriented entrepreneurships. However, the ecosystem perspective focuses on exogenous factors to the concept. Entrepreneurship is a multidimensional concept with varying perspectives, activities and outputs that influence outcomes and impacts. The effects of this multidimensionality on the performance of entrepreneurship in low income and high income countries remain an area not covered in literature.
... Evasive entrepreneurship has noticeably spurred the most extensive studies among all entrepreneurial responses to institutional embeddedness (Coyne and Leeson 2004;Elert and Henrekson 2014, 2016Kalantaridis et al. 2008;Smallbone and Welter 2012;Yakovlev 2006). Evasive entrepreneurs bypass the existing institutions by exploring loopholes and inconsistencies in existing laws (Coyne and Leeson 2004;. ...
... Evasive entrepreneurship has noticeably spurred the most extensive studies among all entrepreneurial responses to institutional embeddedness (Coyne and Leeson 2004;Elert and Henrekson 2014, 2016Kalantaridis et al. 2008;Smallbone and Welter 2012;Yakovlev 2006). Evasive entrepreneurs bypass the existing institutions by exploring loopholes and inconsistencies in existing laws (Coyne and Leeson 2004;. When institutions are inefficient, entrepreneurs use innovations to take advantage of business opportunities resorting to evasive activities, and in the process, extract rent (Elert and Henrekson 2017;Leeson and Boettke 2009). ...
Chapter
It has been documented that entrepreneurs can affect institutions at local, regional, and national levels. Most studies in entrepreneurship, however, look at how institutions and institutional frameworks support or deter entrepreneurial actions, while the literature on whether and how entrepreneurship affects institutions is lacking. This necessitates the examination of a two-way relationship between institutions and economic agents. Institutional change caused by entrepreneurs’ actions is often presented through the lens of institutional entrepreneurship. Entrepreneurs influence institutions through three main channels: political action, innovation, and direct action, which may involve “passive adaptation and evasion, active adaptation and resistance to change.” Most of the documented examples of entrepreneurs’ impact are from postsocialist countries, countries in transition, and emerging market economies. This chapter offers an extensive overview of how entrepreneurs influence institutional change in emerging market economies.
... Baumol's classic 1990 paper has sparked a research program spanning both NIE and the "mainstream" entrepreneurship literature, with scholars deploying his framework to explain variation in the allocation of entrepreneurial activity across different nations-that is, why some nations have high rates of productive entrepreneurship while others have a larger share of unproductive activity (see, for instance, Coyne and Leeson 2004;Acs 2008;Aidis, Estrin, and Mickiewicz 2008;Sobel 2008;Bjørnskov andFoss 2008, 2016;Minniti 2008;Estrin et al. 2013;Stenholm et al. 2013). Furthermore, Baumol's work opened the door to extending entrepreneurship beyond the application to "productive activity" found in the works of Mises, Murray N. Rothbard, and Kirzner. ...
... Preliminary attempts at addressing this puzzle can be seen in the emerging literature that examines the range of potential entrepreneurial responses to various institutional rules. This work expands on Baumol (1990) by demonstrating that entrepreneurial response, like entrepreneurial outcome, may also be divided into three broad categories: entrepreneurial actors may abide by, alter, or altogether evade the rules of the game (Coyne and Leeson 2004;Li, Feng, and Jiang 2006;Henrekson and Sanandaji 2011;Elert and Henrekson 2016). An abiding strategy refers to entrepreneurial action that complies with the institutional status quo; an altering strategy occurs when entrepreneurs lobby rule makers for change; an evasive strategy seeks to circumvent the rules entirely (Henrekson and Sanandaji 2011;Elert and Henrekson 2017). ...
Article
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New institutional economics (NIE) and Austrian economics (AE) both emphasize the role that institutions play in facilitating or impeding entrepreneurship and hence economic growth. In this paper, we discuss the complementarities between AE and NIE for advancing our understanding of the relationship between institutions and entrepreneurship. We argue that a subjectivist view of institutions, entrepreneurial microfoundations, and capital heterogeneity can enrich our understanding of within-country variation in entrepreneurial strategies, institutional evolution, and the relationship between institutions and production processes. We hope our discussion serves as an invitation both for further theoretical collaboration between the two camps and as a spur to applied research at the intersection of institutions and entrepreneurship.
... In practice, this means that a society's institutions-the formal and informal rules of the game (North, 1990)-influence the nature of entrepreneurial activities, and whether they are productive (corresponding to a bigger social pie), unproductive (the size of the pie remains unchanged), or destructive (the pie shrinks). In neoclassical production terms, the distinction corresponds to an outward (productive) shift, a non-shift (unproductive), or an inward (destructive) shift in the production possibility frontier (Coyne & Leeson, 2004). ...
... Although all types of entrepreneurial activity occur in all societies (e.g., Acemoglu, 1995;Desai & Acs, 2007;Coyne & Leeson, 2004;Smallbone & Welter, 2002;Sobel, 2008), their relative allocation appears important determinant for each society's level of welfare and growth rate. Different contexts carry different welfare implications for different people (Davidson & Ekelund, 1994;Desai & Acs, 2007), and Baumol (1993) himself acknowledges that his categorization is not always straightforward. 1 Still, the distinction has proven an intuitive and appealing way of classifying activities that require entrepreneurial talent (see, e.g., Minniti, 2008). ...
Article
Researchers increasingly recognize that entrepreneurial employees, intrapreneurs, play a critical role in innovation. As with regular entrepreneurship, however, the value of intrapreneurial activity depends on the firm-specific and societal reward structures that intrapreneurs face. Ideally, these rules of the game are such that they reward intrapreneurship that is beneficial for the firm and the economy. When this is not the case, intrapreneurship can be beneficial for the firm but not for society, damaging for the firm yet beneficial for society, or downright non-productive. We offer a taxonomy describing how society’s rules and firm rules interact to produce different intrapreneurial outcomes.
... In his trichotomy, both unproductive and destructive entrepreneurship involve reallocation via transfers. Boettke and Coyne (2003) and Coyne and Leeson (2004) emphasize how institutions fundamentally determine these payoffs. Building on this insight, Coyne et al. (2010) argue that "non-productive" entrepreneurship-involving the transfer rather than the creation of wealth-is the driver of economic stagnation and decline. ...
... The productivity (or lack thereof) of entrepreneurship depends on the institutional environment. As Boettke and Coyne (2009) highlight, institutional context matters, because it shapes entrepreneurs' incentives and opportunities (see also Coyne and Leeson 2004). In the context of prices, profit and loss, and property rights, entrepreneurship tends toward productive outcomes. ...
Article
The dynamics generated by government intervention can impel superfluous discovery in the entrepreneurial process (Kirzner 1985, Ikeda 2005). We describe one form of superfluous discovery: market-making entrepreneurship. Specifically, we examine cases in which government authorities sets a positive price on a resource for which no market previously existed. By attaching enough value to an item previously viewed as undesirable, an intervention may transform a noneconomic good into an economic good, encouraging entrepreneurs to create a market in the new good. Our argument explores how entrepreneurs respond when interventions transform resources that were not previously traded for a positive price into economic goods that are traded for a positive price. We illustrate the broad relevance of these market-making dynamics by presenting five diverse cases: rats in colonial Vietnam; feral pigs in Fort Benning, Georgia; tuberculosis in South Africa; homelessness in the United States; and soldier remains in Southeast Asia
... Contrary to what some scholars have described as the impossibility of entrepreneurship in the public sector and warnings against attempting it (Currie, Humphreys, Ucbasaran, & McManus, 2008;Gatenby et al., 2015), we agree with those who say that such entrepreneurs do exist and get things done (Dacin, Goodstein, & Scott, 2002 Levy & Scully, 2007), although they behave differently from private sector entrepreneurs because of the different institutional context (Catney & Henneberry, 2016;Coyne, 2004; and the constraints, on them in trying to change institutions, which also differ from those in the private sector (Klein et al., 2010;Ostrom, 1965). ...
... The contribution of the paper is fourfold: First, it helps political authorities understand that successful administrative reforms demand such IEs, or leadership with entrepreneurial characteristics, especially in developing countries (Coyne, 2004;Hartley & Allison, 2000). Second, we further the idea that such entrepreneurs can develop measures to help overcome bureaucratic resistance to reforms, producing change that can lead to the institutionalization of new reform ideas (Mizrahi, 2017;Wahid & Sein, 2013). ...
Article
Performance management (PM) has become one of the most important reforms in the public sector in both developed and developing countries. Unfortunately, institutionalizing PM in the sector continues to be a major problem. Although a number of scholars continue to study the PM in the public sector from different theoretical perspectives, there has been paucity of research concerning the process of institutionalization. The few studies that have attempted to look at the process have done so from a “coercive isomorphism” perspective, especially through legislation. The lack of studies to examine the process of institutionalization has therefore created a gap, which needs to be filled. We therefore attempt to contribute to this discussion by exploring the role of institutional entrepreneurs and their impact on the development and institutionalization of PM in developing countries, with a particular focus on Ghana, a country obsessed with PM but was only able to institutionalize one in 2013 under the leadership of its Public Services Commission. How was the leadership of the PSC able to succeed where previous leaders could not? What characteristics did they display, and what strategies did they use to get things done? The research is a qualitative one.
... As shown in Table 2, Baumol's three typologies are largely conceptualized by using two main indicators: the outcome of the activity and the entrepreneur's action. In a few studies (Coyne & Leeson, 2004;Coyne, Sobel, & Dove, 2010;Sobel, 2008), unproductive and destructive entrepreneurship are classified under one category and there is no clear distinction between them. Baumol himself does not present a clear distinction between unproductive and destructive activities (Desai, 2016). ...
... Of course, we need more research on the mutual relationship between formal and informal institutions, specifically their complementary or substitutive relationships. Some research have taken an explanatory historical approach (inspired by Baumol's adherence to historicism) to study how institutional inefficiencies such as institutional uncertainty in Romania (Coyne & Leeson, 2004) or institutional inertia in post-socialist countries (Kshetri, 2009) lead to an increase in the prevalence of unproductive/destructive entrepreneurship. Pittaki (2018) provided a historical analysis of the influence of tax regime functioning on entrepreneurship allocation in Greece. ...
Article
Baumol's theory of entrepreneurial allocation has been widely utilized and cited by management and entrepreneurship scholars over the last three decades. Despite the increasing popularity, there is no systematic review of prior studies to integrate the literature, highlight the missing links, and provide avenues for future research. In this vein, we reviewed and contently analyzed 76 articles published from 2001 to 2018. In our systematic review, we (1) classified the articles in five main categories, (2) discussed studies within each category, (3) proposed a revised version of entrepreneurial allocation theory, and (4) outlined the research gaps and future research opportunities. Our review shows that beyond Baumol's focus on the institutional factors, individual factors such as intention, talent, and perception together with entrepreneurial actions for dealing with institutional arrangements can also explain the allocation of entrepreneurial efforts, under-examined in prior studies. This opens novel avenues for future studies to further extend this promising research stream.
... A weak formal institutional framework limits opportunities for high-impact activities and increases low-impact activities. For example, K. Coyne and P. Leeson (Coyne, 2004) argue that political and legal instability leads to non-performance of contracts because it is easier to ignore laws than to obey them, thus increasing levels of corruption and the informal economy. Similarly, the absence of an effective judicial system limits the expansion of the network of customers, creditors or suppliers and makes it very difficult for organisations to operate. ...
Article
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The article is devoted to the study of the impact of institutional aspects on the transformation of the hospitality industry in Ukraine. The object of the study is the transformation processes of the hospitality industry, which took place under the influence of institutional factors. The paper analyses a number of scientific works by foreign and domestic scholars on understanding the concepts of "institution", "institute", "institutional environment" and its importance in the development of the hospitality industry in general. Methodology. The aim of the study is to analyse the impact of institutional factors on the transformational processes of development of the hospitality industry in Ukraine at the present stage. It is proposed to consider the institutional environment as a set of formal and informal institutions that at different levels have different impacts on the formation of the institutional system of society. The comparative characteristics of formal and informal institutions were compiled in order to clearly distinguish their differences and apply them correctly in building an effective institutional policy for the hospitality industry. It is proved that although formal institutions are relatively stable, their formation and preservation should be based on their perception by people in society as a factor in effectively solving certain problems. It was determined that Ukraine, as a country in a period of crisis (direct military action), should seriously consider institutional factors as a source of future direct investment, and weak institutional policies will raise concerns about the possibility of transferring management practices, procedures, and methods from other countries. The authors compiled a scheme of influence of factors on the formation of the institutional environment of the country as a whole and the hospitality industry, including political, legislative, economic, socio-cultural and ethical factors of influence. The publication examines the mutual influence of the institutional environment and the organisation, which is based on institutional ties, institutional pressure and institutional entrepreneurship. It has been found that an effective institutional environment stimulates the development of the hospitality industry, and a good institutional structure characterised by a strong rule of law, control of corruption, freedom of expression, a stable political environment, better regulation and good governance can open a new path for hospitality services. Conclusion. The results of the study are a significant contribution to the qualitative formation of the institutional environment of the hospitality industry.
... More generally, the literature on the importance of sound institutional environments is also abundant (see, e.g. Rosenberg, 1960b;North and Weingast, 1989;Jensen and Meckling, 1979;Scully, 1992 andJensen and Meckling, 1979;Holcombe, 1998;Coyne and Leeson, 2004;or Boettke and Coyne, 2003). Finally, studies have offered conclusive empirical evidence of the strong link between sound institutional environments and economic growth and prosperity (e.g. ...
Article
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After a half-century of failed top-down international aid efforts that ignore basic microeconomics, the New Development Economics (NDE) offers an alternative. First, sound institutions (such as rule of law, property rights, contractual enforcement, etc.); second, respect for basic microeconomic principles (from incentives to knowledge). Within the New Development Economics, development economist William Easterly offers controversial and innovative insights; one of these is the ineffectiveness of education - alone, and without sound institutions - for promoting growth. We argue that Easterly is generally correct, but we improve on Easterly's lessons by dehomogenizing education. Specifically, education for girls has high marginal returns: at the micro level, even a slight increase in education dramatically improves the health of girls - and their daughters - in a virtuous cycle. At the macro level, educated women have a significant marginal impact on growth and institutional improvement. We complement a theoretical approach with a case study that demonstrates the importance and marginal impact of educating girls - even if sounds institutions are not yet present.
... Significantly, the idea of rent-seeking being unproductive draws on a long tradition of social science research (Olson 1982;Baumol 1996;Coyne and Leeson 2004;Dejardin 2011;Congleton 2015a). Documented examples include EU farm lobbying (Nedergaard 2006), American corporations manipulating financial regulation (Zywicki 2016), and state-owned enterprises breeding cronyism (Som 2022). ...
Article
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Developmental state scholars argue that through “embedded autonomy”, state activism can steer society towards positive outcomes without capture by private interests. This paper questions this claim through a case study of such activism in Singapore. It argues that not only may rent-seeking have been encouraged by Singapore’s use of industrial policy but that such a policy goes hand in hand with attempts by state actors to create an economic culture that legitimises such behaviour. The wider implication drawn is that mission-oriented state activism may require extensive cultural engineering to foster consensus over the relevant “missions”, but this level of social penetration also increases the risk of private interests capturing the state in less visible ways.
... 13 The distinction between unproductive and destructive is not crystal clear, and Baumol did not present an unequivocal distinction between them (Desai & Acs, 2007). One "conventional" interpretation is to define unproductive entrepreneurship as an activity that is purely redistributive and destructive entrepreneurship as an activity that reduces social welfare or output (see Coyne & Leeson, 2004). As all activities are associated with an opportunity cost, the distinction breaks down (McCaffrey, 2018), and in the subsequent literature, unproductive and destructive activities are often merged into one category (typically denoted "nonproductive"). ...
... Setting aside the ongoing debates on the types of economies, some studies have linked spatial entrepreneurship to self-employment and in particular to female self-employment (Bashir et al., 2014;Tamvada, 2015). According to Wennekers and Thurik (1999), Douhan et al. (2007), Coyne and Leeson (2004), and Wong et al. (2005), self-employment is either an opportunity driven or choice driven. It is also referred as occupational entrepreneurship that can be measured both statistically and dynamically. ...
Article
Although several studies have proposed that entrepreneurial processes and growth can be facilitated or constrained by their operational context, an evaluation of the entrepreneurial success not just limited to the social, institutional, or economic contexts but also the spatial context is much required. As studies in the developing regions were scarce, this article aims to explore the spatial evidences of entrepreneurship by adopting distance from the capital city as a discriminating factor. The context of the study is the state of Jharkhand in India, rich in natural resources, but with unregulated labor markets and unequal concentration of economic activities. Discriminant analysis was adopted to find the percentage of new start-up registrations based on the distance from the main headquarters in the state in each of the 24 districts of the state. The resulting discriminant analysis revealed that literacy rate, quality of local physical infrastructure, population density and household banking and credit conditions were critical to the spatial distribution of self-employment opportunities. The study is a first in the region to examine and explicitly explore the variables causing entrepreneurial spread in the region and could be a departure point for future research in the area of spatial entrepreneurship.
... In Sect. 3, I contribute to the recent literature in Austrian economics on the relationship between institutions, entrepreneurship and economic growth (Benson, 2015;Boettke & Candela, 2017;Boettke & Coyne, 2003;Burns & Fuller, 2020;Coyne & Leeson, 2004;Holcombe, 1998;Leeson & Boettke, 2009;Manne, 2014;Redford, 2020), particularly by illustrating how Simon's rendition of economies of scope encapsulates the insights of Mises, Hayek and Kirzner as they pertain to economic development. My contribution, in particular, parallels that of Henry Manne (emphasis original;2014, p. 253), who emphasized the role of the entrepreneur in "recognizing a distinctive kind of productive inputin which one can have some form of property right -not generally considered in the neoclassical market model." ...
Article
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Julian Simon famously argued that economic growth is correlated with population growth. The basis for this correlation is what Simon refers to as the “ultimate resource,” namely the human mind and the collective stock of dispersed, tacit, and inarticulate knowledge among individuals. Though not incorrect, this simple rendition of his argument does not do full justice to the inspiration that Simon took from the mainline of economic thought. The purpose of this paper is to situate Julian Simon’s The Ultimate Resource as part of the mainline of development economics. I do so by developing an implicit and underappreciated relationship between entrepreneurship and economic growth in Simon’s The Ultimate Resource. I argue that this correlation between economic growth and population growth is predicated on what Simon refers to as “economies of scope.” This implies twofold. First, that a Smithian division of labor and a Hayekian division of knowledge emerge simultaneously, but are inherently predicated on a Misesian division of private property rights. Secondly, population growth is a proximate cause of economic growth, and therefore a by-product of a more fundamental institutional foundation: an ever-increasing scope in the ability of individuals to exchange ideas, goods, and services.
... It is the set of rules and not the supply of entrepreneurs or the nature of their objectives that undergoes significant changes from one period to another and helps to dictate the ultimate effect on the economy via the allocation of entrepreneurial resources (Baumol, 1990). Studies undertaken subsequently have explored how the institutional environment determines the allocation of entrepreneurial efforts among different types of activities (e.g., Aghion, Akcigit, Cagé, & Kerr, 2016;Audretsch, 2018;Boettke Peter & Piano, 2016;Bowen & De Clercq, 2008;Coyne & Leeson, 2004;Gohmann Stephan, Hobbs Bradley, & McCrickard Myra, 2016;Henrekson & Sanandaji, 2010;Sauka, 2008;Sobel, 2008). In a weak institutional environment, as the reward system favors unproductive uses rather than productive uses of these resources, entrepreneurs are likely to devote their time and effort to unproductive activities. ...
Article
The behavior of entrepreneurs is significantly affected by the rules of the game and the behaviors of government officials, because they can affect the relative payoffs to different entrepreneurial activities. Based on a representative survey data of private firms and the information of city government officials in China, this paper shows that the change of key local government officials affects the time allocation of the entrepreneurs, and subsequently the performance of firms. In order to maintain and develop the business-government relationship, entrepreneurs have to allocate less time on productive activities and more time on non-productive activities. This effect is particularly large if 1) entrepreneurs do not have political connections, 2) new officials lack local working experience, 3) private firms belong to special industries, 4) private firms have large number of employees. This paper provides micro-level evidence to Baumol's entrepreneurship allocation theory and a mechanism to account for the observed negative effect of local government leadership turnover on local economic growth in China.
... Therefore, while entrepreneurship can generate economic and social benefits, it can also be a source of negative outcomes. Indeed, a small stream of recent research is beginning to recognize that entrepreneurship can be harmful (Antony, Klarl, and Lehman, 2017;Collins et al., 2016;Dutta and Sobel, 2016;Vivarelli, 2013), dysfunctional (Zahra and Wright, 2016), and evasive (Coyne and Leeson, 2004). This research on the negative outcomes of entrepreneurship offers an important counterweight to the extensive literature on its positive outcomes. ...
Article
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While entrepreneurship can generate economic and social benefits, it can also be a source of negative outcomes. We need to gain a deeper understanding of how individual entrepreneurs interpret their context and engage in entrepreneurial action that can generate substantial negative outcomes. In this paper we shed light on the entrepreneurial process at the micro-level by exploring how bunkerers—oil thieves—engage in, justify, and persist with entrepreneurial action that, while generating some benefits for the entrepreneurs and the local community, causes substantial destruction to the local environment, community, and the entrepreneurs’ health. By inductively generating a personal adversity model of justifying entrepreneurial action that generates substantial negative outcomes (for the local community and environment), we provide new insights into (1) the link between aspects of entrepreneurship under adversity and substantial costs (and some benefits) experienced by local communities already facing adverse conditions, (2) how entrepreneurs’ claim varying levels of agency in the same justification of the same action and its negative consequences, and (3) how entrepreneurs entangle the self and others to justify their actions and its costs.
... Prior studies have emphasized the role of institutions in influencing how entrepreneurs channel resources into various types of activities. Most of the literature has centered around formal institutions, such as property rights protection and the rule of law (Bowen and De Clercq, 2008;Coyne and Leeson, 2004;Dong et al., 2016;Guo et al., 2017;Sobel, 2008). They show that as the prevailing formal institutions determine the reward structure in an economy, good institutions can allocate talent to productive entrepreneurship while poor ones may induce entrepreneurs to engage in rent-seeking activities. ...
Article
Institutions can shape the reward structure in the economy and thereby influence the allocation of entrepreneurship between productive and unproductive activities. This paper investigates the effect of religion, one important component of informal institutions, on unproductive entrepreneurship. Using a nationally representative survey on private enterprises in China, we find that religious entrepreneurs devote more of their resources, both in terms of money and time, to unproductive activities such as building social relations than their nonreligious peers. We further find that religion plays a significant role only in regions with weak regulatory institutions and/or for entrepreneurs vulnerable to institutional risks. Drawing on the close link between risk-aversion and religion, our results suggest that religious entrepreneurs engage in unproductive activities so as to reduce institutional risks in their business operations.
... Poor entrepreneurial planning and learning transform negative impact on society; it is not acceptable hilariously for economic development of underdeveloped courtiers (Naude, 2013). Underdevelopment is not considered as due to an inadequate supply of entrepreneurs, but due to weaknesses in planning that has effect on learning as "lack of proceeds opportunities attached to performance so as to yield economic growth concern (Coyne & Leeson, 2004). Particular entrepreneurs are more successful than others who have prior business experience sufficient knowledge, and understanding of entrepreneurship (Parkar, 2004). ...
... Baumol's seminal paper (1990) about the importance of institutional frameworks on the allocation of entrepreneurial talent among productive, unproductive or destructive activities has been highly relevant, particularly as it stressed the importance of focusing not only on the level but also on the type of entrepreneurial activity taking place within a specific society, as a product of returns provided by the institutional context. This approach involves assuming that the type of entrepreneurial activity selected by entrepreneurs will be influenced by the profit rates of alternative activities (El Harbi and Anderson 2010), some of which will be coherent with economic growth, whilst others will not (Boettke and Coyne 2003;Coyne and Leeson 2004;Stenholm, Acs and Wuebker 2013). Therefore, the institutional environment will define the type of entrepreneurial activities that will become the main recipients of entrepreneurial talent (Murphy, Shleifer, and Vishny 1991;Acemoglu 1995). ...
Article
The objective of this work is to examine the influence of formal institutions on the level of informal entrepreneurial activity in Latin American countries. We use a panel dataset for 18 countries during the 2004-2017 periods. This dataset has not been widely used for longitudinal research by academics in the field of entrepreneurship in developing countries. Using the percentage of the adult population identified as self-employed as a proxy for informal entrepre-neurial activity, our results suggest that informal entrepreneurial activity is lower in Latin American countries that have stronger property rights and lighter business regulation. However, countries with more flexible labor regulation show higher informal entrepreneurial activity. Therefore, we believe there is margin for policy intervention to reduce informal entrepreneurial activities in Latin America.
... Poor entrepreneurial planning and learning transform negative impact on society; it is not acceptable hilariously for economic development of underdeveloped courtiers (Naude, 2013). Underdevelopment is not considered as due to an inadequate supply of entrepreneurs, but due to weaknesses in planning that has effect on learning as "lack of proceeds opportunities attached to performance so as to yield economic growth concern (Coyne & Leeson, 2004). Particular entrepreneurs are more successful than others who have prior business experience sufficient knowledge, and understanding of entrepreneurship (Parkar, 2004). ...
Article
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This study documents the social impediments to the success of entrepreneurship or self-employment. The failure cases of District Faisalabad, Punjab were the population of research. Exploratory case study method Yin, (2014) was used to furnish whole process. The experiences of failure entrepreneurs were acquired by putting open ended questions via personal interviews and field notes were taken for data saving. Thematic analysis was used to analyze the data and to generate important themes. The findings of the study revealed that insufficient prior entrepreneurial experience, multiple business thinking and access to the market, lack of interaction with successful entrepreneurs, lack of proper planning and strategy to start the venture, lack of learning from fear of risk taking behavior after failure in prior business attempt were the themes of research. It was suggested that proper planning and strategy is needed to start the venture; for this purpose training programs must be launched by state.
... They therefore often resort to less direct institutional responses which fall into the third, evasive, category. The term evasive entrepreneurship was first introduced by Coyne and Leeson (2004), but already Adam Smith was aware of the phenomenon, stating that the "natural effort of every individual to better his own condition … [is] not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operation" (Smith 2007(Smith [1776, p. 316). ...
Article
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Entrepreneurship plays a pivotal role for institutional change and economic development in transition and developing economies. Formal and informal institutions in such countries are often sub-par, but rather than being constrained by them, entrepreneurship can often affect institutions and contribute to their evolution. We highlight three entrepreneurial responses to the institutional status quo: an abiding response, an altering response, and an evasive response. Each response can be either welfare-enhancing or welfare-reducing; more importantly, each response can affect the institutional framework of the society in which it occurs. Better knowledge of entrepreneurial responses to institutions and the context in which they occur offers a promising avenue for future research and a potential way of sustaining lasting institutional change and economic development.
... They therefore often resort to less direct institutional responses which fall into the third, evasive, category. The term evasive entrepreneurship was first introduced byCoyne and Leeson (2004), but already Adam Smith was aware of the phenomenon, stating that the "natural effort of every individual to better his own condition … [is] not only capable of carrying on the society to wealth and prosperity, but of sur- mounting a hundred impertinent obstructions with which the folly of human laws too often en- cumbers its operation"(Smith 2007(Smith [1776, p. 316).Many firms in the sharing economy engage in evasive entrepreneurship, purposefully shaping their innovations to make it ambiguous which institutions apply. AsMokyr's (2010) account regarding the importance of ignoring and evading obsolete rules and reg- ulations in Britain during the Industrial Revolution illustrates, evasive entrepreneurship is highly relevant as a second-best solution when institutions stifle commercial activity(Mokyr 1992;Jones 2003;Acemoglu et al. 2005). ...
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Entrepreneurship plays a pivotal role for institutional change and economic development in transition and developing economies. Formal and informal institutions in such countries are often sub-par, but rather than being constrained by them, entrepreneurship can often affect institutions and contribute to their evolution. We highlight three entrepreneurial responses to the institutional status quo: an abiding response, an altering response, and an evasive response. Each response can be either welfare-enhancing or welfare-reducing; more importantly, each response can affect the institutional framework of the society in which it occurs. Better knowledge of entrepreneurial responses to institutions and the context in which they occur offers a promising avenue for future research and a potential way of sustaining lasting institutional change and economic development. JEL Codes: L5; M13; O31; P14.
... They rank highly on individualism and lower in power distance that gives them much of freedom in decision-making because they face government's fewer regulations. This is opposite when it comes to Africa, where native entrepreneurs experience threats from existing political system, from colonial monopolies and from the local socio-culture system (Coyne and Leeson, 2004;Tshikuku, 2001). However, the study by Oppong suggested Africa is influenced by its culture (Oppong, 2013). ...
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Purpose The purpose of this paper is to empirically explore the impact of culture (using individualism, power distance and uncertainty avoidance) on entrepreneurial risk taking behavior which leads to the opportunity exploitation decision. Moreover, it also uses risk taking behavior of entrepreneurial as the mediation variable between culture and opportunity exploitations decisions. Design/methodology/approach The study took place in Tanzania, which is allocated in East Africa and is one of under researched countries. In total, 140 entrepreneurs who own venture of 5-99 employees were able to be interviewed using a survey questionnaire. In this study, structural equation modeling (SEM) was used to examine the direct and indirect relationship of culture in entrepreneurial opportunity exploitation decisions. Findings After hypothesis testing, the empirical results showed that Tanzania’s culture has an impact on entrepreneurial risk taking behavior, which influences entrepreneurial opportunity exploitation decision. It also showed culture through individualism and uncertainty avoidance measurements affect entrepreneurial opportunity exploitation decisions. The empirical results on power distance were insignificant. Research limitations/implications This study is a wake-up call to policy makers and formal institutions such as government authorities, education institutions and religion institutions. Thus, culture has an ability to influence the behavior of entrepreneurs and so the performance of ventures if it is consistent and well structured. Therefore it should be not taken for granted. Data for our study are based on only two cities and therefore the results should not be generalized as the whole country’s inference. Generalizability is questioned because the data are from only two cities in Tanzania and therefore future research should include more cities to be able to validate the generalizability. Practical implications This study is a wake-up call to policymakers and formal institutions such as government authorities, education institutions and religion institutions. Thus culture has an ability to influence the behavior of entrepreneurs and so the performance of ventures if it is consistent and well structured. Therefore it should be not taken for granted. Data for our study are based on only two cities and therefore the results should not be generalized as the whole country’s inference. Social implications In the country which has well-structured culture, influence the behavior of entrepreneurs to exploit opportunities. Originality/value This is the first empirical study to use SEM for exploring the culture of individualism, power distance and uncertainty avoidance impact on entrepreneurial opportunity exploitation in Tanzania.
... It has been observed that when tax rates or corruption levels are high or there are market restrictions, economic activity moves from formal to informal economy (Johnson et al., 1998;Schneider and Enste, 2000). In line with this argument, Coyne and Leeson (2004) argue that political and legal instability lead to the non-performance of contracts because it is easier to ignore the laws than to keep them, increasing the level of corruption and the informal economy. In the same way, ''the lack of an effective court system limits the expansion of one's network of clients, lenders or suppliers and makes it extremely difficult for entrepreneurs to extend their network beyond a few close friends and neighbors whom they know well'' (Coyne and Leeson 2004, p. 242). ...
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This paper analyzes opportunity entrepreneurship through the interplay between formal and informal institutions. It seems evident that not all entrepreneurial initiatives have the same quality, thus the goal of a society should be to encourage the activities that best contribute to innovation and value generation. We theorize that informal institutions are contingent to the formal institutional environment where the new ventures operate. Our empirical results, using GEM data, confirm that, in countries with a more individualistic orientation, the relationship between formal institutions and opportunity entrepreneurship is more intense, as happens in societies with lower levels of uncertainty avoidance.
... The facts remain immortal, as Porter (2003) mentioned; Oman's economy suffered from an underlying entrepreneurial malaise, which without action will hinder economic growth. Al Shanfari (2012) supported it and explained the core issue related to entrepreneurship (Coyne and Leeson, 2004) in the Middle East and stated that in the majority of the Middle East countries, the problem is not the lack of entrepreneurship, but rather a negative macro environment and infrastructure which channels entrepreneurial activity into unproductive and destructive economic directions instead of wealth creation. ...
... Evasive entrepreneurship (EE, henceforth) is usually defined as the 'expenditure of resources and efforts in evading the legal system or in avoiding the unproductive activities of other agents' (Coyne and Leeson, 2004: 237, see also Boettke and Coyne, 2009) or as a 'profit-driven activity in the market aimed at circumventing the existing institutional framework by using innovations to exploit contradictions in that framework ' (Elert and Henrekson, 2016: 95). Even if institutions matter, they 'matter less for entrepreneurs than for other economic agent in the market' (Elert and Henrekson, 2016: p.95). ...
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Institutions play a major role in the allocation and productivity of entrepreneurship. However, most studies on the subject assume a top-down relationship between institutions and entrepreneurship. The paper elaborates on the concept of evasive entrepreneurship to provide a bottom-up theory of institutional change. Using insights from the literature on the diffusion of new technologies, we show that the adoption of evasive and more efficient practices by early adopters is not sufficient to impact institutions. The efficiency criterion is not enough to explain institutional change. An early majority of users must be reached. We call the critical path from early users to early majority the "institutional chasm". We identify several enabling factors to cross the institutional chasm. We use the recent regulation of cryptocurrencies to devise a typology of institutional change.
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