Entrepreneurial Behavior, Institutional Trust and National Innovation: A Macro-Level Empirical Study

Abstract

Schumpeterian fundamentalism supports the argument that innovation is a dynamic process and novelties are initiated through economic agents namely the entrepreneurs; vis-à-vis a strong institutional environment is required to facilitate the innovation process. Therefore, the present study undertakes the macro-level empirical analysis on determining the impact of entrepreneurial behavior, property rights and state effectiveness on country’s innovation. The data is of panel nature consisting of 55 countries and a time period from 2010 to 2016. The empirical analysis is done using system GMM (Generalized Method of Moments) estimation technique. The study shows that the fear of failure rate and total early stage entrepreneurs reduces innovation in a country whereas there is a significant positive relationship between established business entrepreneurs and innovation. However, perceived opportunities have an insignificant impact. This means that it is not inevitable that opportunities necessary trigger innovation. In addition, the study shows that property rights play an integral role in developing institutional trust which boosts entrepreneurialism to undertake innovative venture. On the other hand, state effectiveness is negatively related to innovation i.e. institutional trust is brought down in fragile countries which retard country’s innovation.