Financial development, entrepreneurship and financial openness: evidence from Asia

Abstract

PurposeThis study examines whether financial development affects entrepreneurship, and how financial openness moderate this relationship.Design/methodology/approachThe study employs panel data consisting of 781 country-year observations of 48 countries of Asia for the period 2001–2018.FindingsThe study provides empirical support for the eclectic theory of entrepreneurship in Asian countries. The findings of the study indicate that effective allocation of resources and ease of transactions increases the entrepreneurial activities in the country. Additionally, the less stringent regulations, allowing for the cross border transactions, increase the funds availability to the entrepreneurs which in turn increase innovation and establishment of new businesses.Research limitations/implicationsThe study only considered the moderating influence of financial openness on the nexus. Other indicators such as governance quality and political stability could also have significant impact on entrepreneurship. Further, our study was based on countries belonging to Asian continent. Since Asian continent has culture distinguished from other regions, therefore, the results cannot be generalized to the other continents.Practical implicationsThe study’s results provide insight to policymakers and regulators that in order to increase the entrepreneurial activities, the financial sector improvement is of paramount importance. The regulators should focus on well-functioning financial system and availability of capital to improve the investor's confidence and boost economic activities.Originality/valueThe study provides novel evidence on the effects of financial development on entrepreneurship and moderating influence of financial openness in the context of the entire Asian region, which is yet an unexplored area. This paper offers a fresh contribution in this area.

Financial development and entrepreneurship: insights from Africa

“…It does not take into consideration the dynamism and endogeneity in the system. Amin et al (2021) conclude that financial development is crucial for entrepreneurial activities in Asia. Still on the Chinese economy, Jiang et al (2019) employ the kernel density estimation method to analyse the role of the inclusive financial index on farmer entrepreneurship among 22 provinces and 4 municipalities.…”

Does Financial Development and Improved Institutions Really Advance Formal Entrepreneurship in Developing Countries?

“…Their results showed that financial development does not encourage entrepreneurship, and that there is a threshold above which financial development has a positive effect on entrepreneurship. [78] found in 48 Asian countries that financial development encourages entrepreneurship.…”