Foreign direct investment, institutional quality, economic freedom and entrepreneurship in emerging markets

Abstract

This study investigates the relationship between foreign direct investment, institutional quality, economic freedom, and entrepreneurship in emerging markets. The research compares the capacity and appetite for business creation among high-income, low-income and emerging countries. The results are based on a panel study of data, from 2004 to 2009 for 87 countries, using as its source "The World Bank Entrepreneurship Snapshots" to look at the connection between business creation, institutional quality, market freedom and foreign direct investment (FDI). The findings reveal a strong positive relationship between institutional quality and business generation in all three of the above categories. Meanwhile, institutional quality and how this develops remains significant to business creation at least two years after a business is incubated, underscoring its importance as a contributory factor for creating an environment conducive to entrepreneurship. The freedom to create businesses and invest has a marked impact on business generation in emerging countries, while the influence of international trade appears more important as a spur to the genesis of business in low-income countries. Results also show that regulation of the free market has a short-term effect on business creation. Finally, there is a direct and significant relationship between FDI and business development in emerging countries. The effect of FDI is also felt for at least two years after the foreign investment. This result is consistent with "the spillover theory of entrepreneurship" (Acs et al, 2009;Görg and Strobl, 2002;Ayyagari et al, 2010).

Export Behavior and Board Independence in Colombian Family Firms: The Reverse Causality Relationship

“…Taking account the large share that family businesses contribute to GDP, one of the main challenges that Colombian policy makers have is to design a framework and develop programs that encourage family firms to export. Thus, national strategies recommended by the literature to support the internationalization of family firms encompass policies oriented to increase the institutional quality, enhance the competitiveness levels, create channels to promote international partnerships, promote ways to more easily access capital, and structure effective technical activities to aid family firms that seek to export or expand existing exports (Mitter et al, 2014, Herrera et al 2014). Yet, managers and business owners can utilize our findings as an informative resource regarding improvements of corporate governance and its relationship with increased firm exports.…”

Entrepreneurial Activity in the EU: An Empirical Evaluation of Its Determinants

“…The level of entrepreneurial activity differs greatly from one country to another, and within the same country from time to time, and is influenced by several types of factors such as economic, institutional, technological and cultural factors [7,[9][10][11][14][15][16][17][18]. According to Arin et al [19], the aggregate level of entrepreneurial activity in a country is the result of a multiple interaction between human capital, the level of economic development and institutions.…”

Devaluation, Competitiveness and New Business Formation in Emerging Countries

“…The dependent variable (NBF) is measured with the new firm formation density, defined as the number of new firms registered per 1,000 economically active people reported by Doing Business for 30 emerging countries in the period 2004-2011 (Klapper et al, 2007;Klapper and Love, 2010;Munemo, 2012;Herrera et al, 2014). Unlike other entrepreneurship measures such as those of Global Entrepreneurship Monitor (GEM) that reflect the informality of the economies by capturing individuals' intention of starting a business, the new firm formation density shows greater adjustment and consistency in measuring NBF across countries by taking into account only the number of firms that become part of the formal economy annually; however, it has the limitation of not considering other forms of organization of entrepreneurial activity.…”

“…Its impact on economic growth and its close relation to factors that mark countries' competitiveness turn it into a central topic for policy definition by national and international authorities. As part of the strategies undertaken to encourage business formation, both developed and developing countries have fostered FDI on the basis of the existence of a "spillover" effect that adds more knowledge and demand for new products to local economies (Markusen and Venables, 1999;Barrios et al, 2005: Herrera-Echeverri et al, 2014. The results of Zhang (2006) and of Yao and Wei (2007) support a positive effect of FDI in the case of China, which since the 1980s and 1990s has initiated a strategy of devaluation of the yuan to boost the growth of its economy in the following years.…”