Oil revenue and entrepreneurship in oil-rich economies: a quantile-on-quantile analysis with institutional quality effects

This study examines how oil revenues influence entrepreneurship in nations with abundant oil resources, exploring whether these incomes encourage or hinder entrepreneurial activity. Using a sample of 25 countries where oil revenue constitutes a significant portion of government spending, we analyze the impact of oil rents on entrepreneurship from 2007 to 2023 through quantile-on-quantile regression. Our findings reveal that oil revenues generally have a negative effect on entrepreneurship, with the adverse impact becoming more pronounced at higher quantiles of oil revenue and entrepreneurial activity. This relationship is primarily driven by an increase in rent-seeking behavior, which displaces incentives for productive entrepreneurship. Importantly, the analysis demonstrates that institutional quality plays a pivotal role in moderating these effects. Strong institutions—characterized by good governance, regulatory quality, rule of law, control of corruption, and political stability—can significantly attenuate the negative influence of oil revenues, particularly at lower to middle quantiles. However, at the highest levels of oil revenue, even robust institutional frameworks struggle to overcome entrenched rent-seeking behaviors. These findings emphasize the need for a comprehensive policy approach in oil-rich countries, combining institutional reforms with economic diversification and innovation-driven strategies to foster entrepreneurship. This study highlights the critical importance of addressing both the direct and indirect effects of oil revenues to create a resilient entrepreneurial ecosystem and facilitate the transition toward a knowledge-based economy.