Impact of Economic Fragility from the Governance Channel on Setting up New Businesses

When an internal or external shock occurs, countries with a lack of good governance and economic fragility are more likely to experience economic and social chaos and economic and political instability. Therefore, with increasing uncertainty due to the high fragility of the economy against internal and external shocks, the motivation of economic actors to start and continue business decreases. In other words, due to macroeconomic instability, the costs of starting a business become so high that individuals, firms are reluctant to take advantage of economic opportunities. For this reason, different countries in order to improve macroeconomic stability and reduce successive and unpredictable changes in laws and regulations, political stability of government, strengthening public services and infrastructure and security of property rights are pursuing strategies to improve the the business environment by reducing the economic fragility under the good governance. Therefore, this study intends to investigate the impact of economic fragility through the governance channel on starting new businesses environment with using the Generalized method of moments (GMM) in selected countries during the period 2006-2019. The results show that economic fragility and its components (economic recession and poverty, unbalanced economic development and brain drain and manpower) through the governance index channel have a positive impact on starting new businesses in the countries under study. The results also show that the variables of financial development, government spending on education, total productivity of production factors have a positive impact on starting new businesses