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Entrepreneurship in Emerging Economies: The Role of Corruption and Rule of Law

Authors:

Abstract

Although emerging economies have become key players in the new global economy, they are struggling to sustain economic growth and development. In this realm, entrepreneurship has been considered as a driving force for economic growth and development. This study contributes to the literature of entrepreneurship by examining the moderating role of corruption on the relationship between the rule of law and entrepreneurial activity, measured by new entry rates, in 42 emerging economies between 2002 and 2014. It suggests that the effectiveness of the rule of law on entrepreneurial activity is contingent upon the lower levels of corruption. Our results showed that the rule of law has a significant effect on new entry rates only when control of corruption is strong. Implications are drawn for aspiring entrepreneurs, policy and future research.
Entrepreneurship in Emerging Economies: The
Role of Corruption and Rule of Law
Hasan Ghura, Arezou Harraf1, Allam Hamdan2
1Department of Business Studies, Box Hill College Kuwait, Abo Halifa,
Kuwait
2Accounting and Economics Department, Ahlia University, Manama,
Bahrain
h.ghura@bhck.edu.kw
a.harraf@bhck.edu.kw
ahamdan@ahlia.edu.bh
Abstract:     
                      


                        
                    
     !     "      
      #
$"


Keywords: %&'%
1. Introduction
'   
(
 !) !*) !+,
-
"
(,(,(
 ! ) .  !+,    /
01(,
 ) 
                          
"(2&3 ! ,

      "                    
( ! ) !*,4$
(&
 !5)26 !*,

                          
(7 ! ,

-    8  9   ( !!, 
3
(,
                          

(,
:(,
;
)0

1(6< =!,>$
( =,?
?:@
( !5,

    
                        
(@ !A,

2. Theory and Hypotheses
                      
     4   
          /      "

(7!== )  !+,
$0
1(B!== A,B(!== ,
$    
$B(!==  5,
     
    
B(!== ,


$01(7
!== )B !== ,       " 
(,(,

$C 
$7
  $  3
(   !, /        
     
$
(9 !!,8
C)

"(
6< =) !,

(& !5) !*,

(&  !5)26 !*,
#              D    E          
            ?      
 (2> !A)F32 !*, #  

?
C(  =)6< =) 
 !) !) !*)26 !*,

"
                   (@   
 !5,&(6!=GA,
              "            ?
(9 !!,
8!
H1: The rule of law within an emerging economy relates positively to its entrepreneurial
activity.
H2: Control of corruption moderates the positive relationship between the rule of law and
entrepreneurial activity within an emerging economy such that the stronger the control
of corruption, the stronger this relationship.
Figure 1: &
3. Data and Methodology
#                    $  
   4   ( ,    
 ?
  (4  ,
/
"
<
3(2&3 ! )F !,H2"
                      
I
$
 J !          (  
,
"
(B%',/7%
6 $
( +,
( +)7 !*,:
              01      
                  $      
(7!== )F ! )
9 !!)> !G,
(&&,('9,
/>(/>,-


01      
  ?5    5                  
(K<. !!) !*,:
$
3

L
?55(9 !!,
8
(/ 5) !,
                  E  
>2@(>2@,E>2@
 (@@@, (>2@,
/ 7(72&3 +)
9 !!)8< !5,
  !                        
#$5*
        (    !            
,
    E               ?    (
,(
 ", 
  (/  !,      $ "
(,(8%:,
$
Table 1:2
Variable Description Source*
2
 B  %
'(B%', 0 $  !
?(!5?*,1 2
7
  ?
 !
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 &  

(&&,
0

01
  ?5 5    
1
/>
 ?
 !
8
 '
(@'#, 0$
                      3  
      
                %    
L                    
?551
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      !  .6
>2@1
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              
1
M2  7 HNNNNN)  />
HNNN?N??)  /  7
HNNNNBO>2@:F@F2P>IQ)  /  7
HNNNNBO>2@@&@@@&2
7     
E)8%:$
  4               8%:      ?
(et al. !,
!   
  
;(i,(t, 
            " 

4. Results and Discussion
                  C    
          #          A     
(,
4"$
              R  ;  8  (R8,
/E(!==!,
"?
3
          "            
(2&3et al. ! )2et al. !!,R8
?"5
(:S !G,
"
":!
"
  :          "            
(,
Table 2:2
Emerging economies
Ob
s.
Mean Std.
Dev.
Min. Max.
!B%'(B%', 5!
55 GG  ! !*5

 &
(&&, 5
*? ! ** ?!+ !5G
8 A'9('9, 5
*?  G ?!5 !!
&
G>2@(>2@, 5
*  ?!+! AAGA
+  >2@      @@@
(>2@, 5
*!A5! 
5* +A**!
=!!A
* A==
A
SourceH#
Table 3:&
R
1 2 3 4 5
!B%' !
&& 5G5MM
M!
A'9 5*MM
M =MM
M!

>2@ ?
!GMM
M
?
GMM
M
?
G+MM
M
!
5
>2@ 5*MM
M * GMM
M *G*MM
M?
A* MM
M
!
SourceH#
MMMpT  !
     
8%::!
$
 (/  !, :      
  ?'E et al. ( !+
5!G,2FE(!==+,0C
      ?              
?1
 :!
$=5U$
                      
??
  (  6< =)
9 !!) !) !) !*)
2  6  !*,    +U     

:( ,"


  C 
  $    (p T  5, :  +5U     

:!:
)$

    (@
 !5,:::!'+5U

&4 ! 
;:!
$=5U
E
4;
 /
:!$
:"
  $ ;   (VQ
! +*)pT  5,
4

$$$
(6!=GA)B!== )9 !!)@
 !5,
Table 4:'(B%',
Model 1
Coef. (std.
error)
Model 2
Coef. (std.
error)
Informal institution
&(&&, =+( A+, +( A*,
Formal institutions
'9('9, =A!( 5!, ! ( 5*,
&(&&,'
9('9, ! +*MM
( A*,
Control variable
>2@(>2@,   (  ,  !*(  ,
>2@(>2@,  MMM
(  ,  MMM( 
,
& 5*( +, ? !5( 5,
@(F?,
' + +5
# 5* 5*
&  
BH2?F
MMMMM$5U!U
SourceH#
  C    
(>2@,$C
(>2@,(:!,
$;
(9 !!)8< !5,
$:!:

(B!== 
 5/ ) !)> !G,

                        
  (    +)     ! ) 7    !A)
 !*,6$
"      
                    
(9  !!) et al. !*) F3 2
 !*).et al. !+),
8E$$
        7;  "            
                "        

 (, 
     (7 !== ) 4    )
/  ) 7    =) F    !) %    !A) 
,
5. Conclusions and Implications for Further Research
&                    
 (    ! )     !*) >    !G,
                
      (9    !!)
6    !A) 8<    !+) .    !+,   
( ? !,
      "              
                  7    
                  
"(,(,

$  

( !*). !+,
#     

E




8$
%  
( !) !+,6
   ;
$"

$
$

< E $ -  
        /              
              8        
    ?  
$$<
     
( +)9 !!,
?
            (7    2
&3 +)W !, :
                 "      
?
(@ !5,/
          E          

References
 PS  %  6< 9 ( !, B   H
Research PolicyA(A,G*?=
PS6<9%( !,>%2
 ! > %2/2&
! 
 PS 2 6  F 98 ( +, /    
ISmall Business EconomicsA!(A,*5?+!
 ' % 6  :< ( +,   
'HJournal of Business VenturingA(*,
*5*?*G
'%6:<:( !,6<H
Small Business EconomicsA=(!,!!=?!A=
6( =,&Oxford Review of
Economic Policy5(,G!?=!
  96    /  6>  (!==!, Multiple regression: Testing and interpreting
interactions6B@&
 B ?2- 4 4 2 S @  B ' ( !+,
Entrepreneurship and the Sustainable Development GoalsEntrepreneurship and the
Sustainable Development Goals(!?G,%@9
K<&.2( !!,%
9Revista Latinoamericana de Administración+A!?5
 6  6< /6 ( =, %   
Journal of Business Venturing(5,*5?G*
 6 . 2   2 ( !*,   
H@Technological Forecasting
and Social Change! (&,5?*!
 > P O  6 % ( !,  "   
       ?   International Journal of
Entrepreneurial Behaviour & Research (A,AG?*
7/S(!== ,%H@Journal
of Political Economy=+(5@!,+=A?=!
7 4@  2 &3 2 ( +,      
"Journal of International Business StudiesA=(,GG?G*G
7 >2  2  @  ( =,  "  
H
9Journal of International Business Studies (5,G*?GG+
7>22949( ! ,H
           I Entrepreneurship
theory and practiceA(A,!? 
7>2866/:( !A,%
Strategic Entrepreneurship JournalG(A,!*=?!+ 
& 8  27  7 : ( !5, 2   
  I International Entrepreneurship and Management
Journal!!(,=5=?=+ 
2/:2&32@#( !!,
                I    
International Business Review (,A=? +
2-6 9@'9<??686( ,
The Quarterly Journal of Economics!!G(!,!?AG
2>:( !A,>I
$Public Choice!55(A,!A?A
2  S&    F  &  (!==+,  &        
Review of economics and statistics+ (,5=?5* 
2 B  6 ' ( !*, 2    I Small
Business EconomicsG(!,!G=?!==
2&322/:2:( ! ,"
  
International Business Review!=(!,+5?! !
% 6 F S  :< ( !A, /  
IJournal of Business Venturing+(,5*?5+ 
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Quarterly!+(,*?5+
8<9><X<&:S@( !+,8
     BRQ Business Research
Quarterly!? 
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        H  9    
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    H             Journal of Business
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Social Change++A* ?A*=
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        H        I Small
Business Economics!?=
/ 6 R /   '  ' @ ( 5, B
     Small Business Economics
(A,=A?A =
/ #%( , H  
Journal of Economic LiteratureA+(A,5=5?*!A
/S:( !,Introductory econometrics: A modern approach6/
&.6
Appendix 1: List of emerging economies selected in this study
!    A   7
5 7 * 7 G 7< + &
= & !  &<' !! % ! >
!A > ! > !5 4 !* 
!G  !+  != S   S
! F<  F' A 9  9
5 : * : G : + :
= B A  @ A! @ A @
AA @ A ' A5 '8 A* 6'
AG 6 A+ 6 A=-   
!   .<
Chapter
Achieving high-quality institutional framework is one of the basic assumptions for achieving a higher degree of welfare state. In addition to the existence of the “game rules” in the market that is equally valuable to all economic agents, it is also a condition without which a higher degree of entrepreneurial activity in the economy cannot be achieved. The aim of this research is to examine which determinants of the institutional framework are crucial for increasing entrepreneurial activity in 24 OECD member countries in the period 2010–2018. The results of Hausman test indicate that a panel with fixed effects is a suitable method for this research. The results of the investigation suggest that Political Rights, Civil Liberties, Freedom of Expression and Belief, Functioning of Government and Rule of Law are important determinants of entrepreneurial activity in observed countries. Furthermore, policies aimed at increasing media freedom and freedom of expressing personal views increase the New business density in OECD member countries. Moreover, when making certain institutional changes, policy makers should be aware of the time gap between the moment of making a decision and its reflection in the economy. Introduction of certain institutional decision may have completely different repercussions in the economy after some period of time. Consequently, particular institutional decisions may require some changes in a longer period after their adoption.
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