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Institutions and Entrepreneurship: The Role of The Rule of Law

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  • André van Stel
  • David Storey
  • Chantal Hartog

Abstract

This paper examines variations in entrepreneurship across twenty developed countries, using three measures of entrepreneurship which we broadly describe as prestart, early-stage and established enterprises. It then links these measures to the economic institutional framework, holding constant a range of other factors. Two groups of conclusions emerge. The first is that the factors that influence pre-start, early-stage and established enterprises differ often quite sharply. Second, our results broadly confirm earlier work suggesting that social security entitlements, taxes, and employment protection legislation are negatively associated with (different forms of) entrepreneurial activity. However, our novel finding is that countries with a "better" rule of law have lower entrepreneurship. We explain this apparently counter-intuitive finding by arguing that in developed economies the benefits of the rule of law accrue primarily to large enterprises.

Suggested Citation

  • André van Stel & David Storey & Chantal Hartog, 2010. "Institutions and Entrepreneurship: The Role of The Rule of Law," Scales Research Reports H201003, EIM Business and Policy Research.
  • Handle: RePEc:eim:papers:h201003
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    References listed on IDEAS

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    Cited by:

    1. Gerrit de Wit & Mercedes Teruel, 2011. "Determinants of high-growth firms," Scales Research Reports H201107, EIM Business and Policy Research.

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