How Does Institutional Quality Affect Business Start-Up in High and Middle-Income Countries? An International Comparative Study

By applying dynamic panel data models and using worldwide governance indexes and popular country-level entrepreneurship measures over the period 1999 through 2018, this research aims to study why and how does institutional quality affect business start-up in high- and middle-income countries, after controlling for factors related to the institutional and macroeconomic environments. Our results indicate, first, that good governance promotes largely entrepreneurship in high-income countries, while its impact is moderate in middle-income countries. Second, the size and strength of the relationship between institutions and entrepreneurship vary with the country’s economic development and with the chosen measure of entrepreneurship. Third, our findings reveal that the debate over whether corruption “sands” or “greases” the entrepreneurship wheels remains not yet settled even in the case of developed countries. Finally, our investigation highlights some policy implications that are essential for the development of an appropriate entrepreneurship policy to provide the engine of the knowledge economy.