Relationship Between State Legitimacy, Economic Policy Uncertainty, and Entrepreneurship: Empirical Evidence From Europe

Abstract

This study aims to analyze the relationships between economic policy uncertainty (EPU), state legitimacy, entrepreneurial activity, and business opportunities. To achieve this goal, 13 European countries are selected for the period 2002 to 2018. Applying partial least squares structural equation modeling, relevant findings were obtained. The results show that higher economic uncertainty is associated with an increase in a country’s entrepreneurial activity, although the perception of entrepreneurial opportunities does not increase. We also observed an inverse relationship between EPU and legitimacy. A higher perception of legitimacy is related to lower entrepreneurial activity and higher opportunities for entrepreneurship. These findings have relevant implications. From the academic point of view, the results make new contributions to research related to the importance of the institutional context and entrepreneurial activity, considering the relationships between EPU and legitimacy and their influence on entrepreneurial activity. We also highlight how policymakers may influence the perception of state legitimacy and, therefore, have an impact on entrepreneurial activities and opportunities.