Economic freedom and formal entrepreneurial activity: A longitudinal analysis between the period 2013-2018

Abstract

Given the lack of empirical consensus on the relationship between formal market-oriented institution and entrepreneurial activity, our research aimed to explore the relationship between formal entrepreneurship and overall economic freedom. To do so, we have generated balanced panel data based on the intersection of available information from the Fraser Institute Freedom Index, The World Bank entrepreneurship survey, and The World Bank macroeconomic indicators. The final sample included information of 107 countries over six years, 2013 to 2018. We modelled the data with a fixed effect and panel-corrected standard errors method with country dummy variables. Our results suggest a negative and significant relationship between(first difference) formal entrepreneurial activity and (lagged) overall economic freedom. Besides, we found that (first difference) unemployment rate, (first difference and log) total population and (first difference) working-age population had a negativeand statistically significant relationship with (first difference) formal entrepreneurial activity. Based on these results, we provided an analysis considering the nature of the entrepreneurial endeavours and suggested further research avenues.