The effect of Economic Freedom Entrepreneurial Activities: Based on the Global Entrepreneurship Monitor

Behvar, SHahin; Naderi, Nader; Fatahi, SHahram

doi:10.22055/jqe.2019.24904.1822

The effect of Economic Freedom Entrepreneurial Activities: Based on the Global Entrepreneurship Monitor

https://doi.org/10.22055/jqe.2019.24904.1822

Volume 17, Issue 3 - Serial Number 66

Vol. 17, No. 3, Autumn 2020

Autumn 2020

Pages 21-42

Quarterly Journal of Quantitative Economics (JQE)

Document Type : Research Paper

Authors

SHahin Behvar ¹

Nader Naderi ²

SHahram Fatahi ³

¹ PhD Student in Entrepreneurship Management, Faculty of Economics and Entrepreneurship, Razi University, Kermanshah, Iran.

² Assistant Professor of Management and Entrepreneurship, Faculty of Economics and Entrepreneurship, Razi University, Kermanshah, Iran.

³ Associate Professor of Economics, Faculty of Economics and Entrepreneurship, Razi University, Kermanshah, Iran.

Abstract

The purpose of the present study is to investigate the effect of economic freedom on the level of entrepreneurial activities in 30 selected countries from 2005 to 2014. Unemployment and the demand for government jobs have created deep socio-economic crises in world economy. However, in the context of competition, global developments, downturns, political and security events, threats and sanctions, limited access to natural resources, difficult geographic location and several other conditions, many countries have experienced economics growth and development. For example, net job growth in the United States, the European Union, and some Asian economies is largely driven by small businesses and entrepreneurship.
Economic freedom and globalization are important factors that can contribute to increasing entrepreneurial and self-employment activities. With globalization and economic freedom, the move toward efficiency and optimization of resource use has begun and employment of inefficient activities that are only viable with government support will disappear and firms will be more prepared to gain self-employment and work in the private sector and global markets.
In this study, based on the Freezer Institute's Economic Freedom Index, economic freedom was investigated using the following five indicators: 1. Government size (government spending, transfer payments, government ownership and government investment, highest tax rate); 2. Legal structure and security of property rights (judicial independence, protection of property rights, law enforcement, legal system integration); 3. Access to safe money (liquidity growth, inflation rate changes, standard deviation of inflation); 4. International trade freedom (Legal barriers to trade, export and import costs, capital market controls); 5. Regulation of foreign laws (Financial, Labor and Trade Laws). Entrepreneurial activities were selected based on the Global Entrepreneurship Observer's definition of five-level entrepreneurship, emerging, new, nascent, stabilized entrepreneurship, and business exit rates.
The research method in this study followed models based on panel data (hybrid) using Generalized Least Square Estimation (GLS) in Eviews9 and Stata14 software environments. We adopted this model because in panel data models, the value of variables is measured both at certain points and over time, and the use of cross-sectional data for several consecutive years yields better and more reliable results. It also increases the explanatory power of the model.
In order to determine the econometric model based on the theoretical and empirical studies of Verheil et al. (2002) in "Eclectic Theory on Entrepreneurship - Policies, Institutions and Culture", variables affecting entrepreneurial activities were identified for estimating and deducing the five models.
The results show that economic freedom has a significant relationship with the level of entrepreneurial activities. Among the indicators examined, the indices of government size, the legal structure, and access to safe money had a positive and significant relationship, but the property security index had a negative and significant relationship with the level of entrepreneurial activity. A large government and a coherent legal structure encourage burgeoning entrepreneurial activities and have generally played a protective role since the founding of state-owned entrepreneurial activities. However, as entrepreneurial activities move forward, the role of the government becomes less and less to the extent that greater size and interference prevents them from leaving the business and market.

Keywords

Economic Freedom

Entrepreneurial Activities

Entrepreneurship

Subjects

International Trade

Acs, Z. (2006). How is entrepreneurship good for economic growth?. Innovations: technology, governance, globalization, 1(1), 97-107.‏##Ahmad Pourdariani, M. (2000). Entrepreneurship, Definitions, Theories, Patterns, Tehran: Pardis Company Publications.[in Persion] ##Angulo-Guerrero, M. J., Pérez-Moreno, S., & Abad-Guerrero, I. M. (2017). How economic freedom affects opportunity and necessity entrepreneurship in the OECD countries. Journal of Business Research, 73, 30-37.‏ ##Albulescu, C. T., Tămăşilă, M., & Tăucean, I. M. (2016). Entrepreneurship, tax evasion and corruption in Europe. Procedia-Social and Behavioral Sciences, 221, 246-253.‏ ##Arbabian, S., Rafat, B., & Ashrafian Pour, M. (2014). Relationship between International Tourism and Economic Growth (Case Study: Selected Countries of OIC). Quarterly Journal of Economic Growth and Development Research, 4(13), 116-97.[in Persion] ##Asoni, A., & Sanandaji, T. (2014). Taxation and the Quality of Entrepreneurship. Journal of Economics, 113(2), 101-123.‏ ##Baumol, W. (1993). Entrepreneurship, management, and the structure of payoffs. Cambridge: MIT Press. ##Bosma, N., Jones, K., Autio, E. & Levie, J. (2011). Global entrepreneurship monitor 2010executive re-port. (London: Global Entrepreneurship Research Association). ##Bosma, N., S. Wennekers, M. Guerrero, J.E. Amorós, A. Martiarena & S. Singer (2013). GEM Special Report On Entrepreneurial Employee Activity. Babson College: Wellesley, MA; Universidad delDesarrollo, Santiago, and Universiti Tun Abdul Razak: Kuala Lumpur. ##Bowen, H. P., & De Clercq, D. (2008). Institutional context and the allocation of entrepreneurial effort. Journal of International Business Studies, 39(4), 747-767.‏ ##Bruce, D., & Gurley, T. (2004, January). Taxes and entrepreneurial entry: an empirical investigation using longitudinal tax return data. In Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association (Vol. 97, pp. 336-343). National Tax Association.‏ ##Christian B., & Nicolai, J. (2006), Economic Freedom and Entrepreneurial Activity: Some Gross-Country Evidence, panish research unit for dynamic industrial (DRUID) Working paper, No. 6-18. ##Díaz-Casero, J. C., Díaz-Aunión, D., Sánchez-Escobedo, M. C., Coduras, A., & Hernández-Mogollón, R. (2012). Economic freedom and entrepreneurial activity. Management Decision, 50(9), 1686-1711.‏ ##Carree, M. A. (1997). Market dynamics, evolution and smallness.‏ ##Demsetz, H. (1982). Barriers to entry. The American economic review, 72(1), 47-57.‏ ##Dutz, M. A., Ordover, J. A., & Willig, R. D. (2000). Entrepreneurship, access policy and economic development: lessons from industrial organization. European Economic Review, 44(4-6), 739-747.‏ ##Esaizadeh, S., Mehranfar, J. (2012). The Role of Institutions in Shaping Entrepreneurship in Selected Countries. Economics Research, 12(44), 199-212.[in Persion] ##Fuentelsaz, L., González, C., Maícas, J. P., & Montero, J. (2015). How different formal institutions affect opportunity and necessity entrepreneurship. BRQ Business Research Quarterly, 18(4), 246-258.‏ ##Friedman, M. (1962). Capitalism and freedom. Chicago: University of Chicago Press. ##Friedman, B. A. (2011). The relationship between governance effectiveness and entrepreneurship, International Journal of Humanities and Social Science, 1(17): 221- 225. ##Gwartney, J., Lawson, R., Hall, J., and Murphy, R. (2017). Economic Freedom of the World: 2018 Annual Report. Fraser Institute. <https://www.fraserinstitute.org/studies/economic-freedom-of-the-world-2018-annual-report>.##Global Entrepreneurship Monitor. (2014). Total early-stage Entrepreneurial Activity (TEA). Data retrieved August 20, 2014, from: Key Indicators.http://www.gemconsortium.org/Data##Global Entrepreneurship Monitor (2014). Improvement-Driven Opportunity Entrepreneurial Activity: Relative Prevalence. Data retrieved August 20, 2014, from: Key Indicators. http://www.gemconsortium.org/Data. ##Guzman, J., & Stern, S. (2016). The State of American Entrepreneurship: New Estimates of the Quality and Quantity of Entrepreneurship for 32 US States, 1988-2014 (No. w22095). National Bureau of Economic Research.‏ ##Hall, J. C., & Lawson, R. A. (2015). Economic freedom of the world: An accounting of the literature. Contemporary Economic Policy, 32(1), 1-19.‏ ##Haltiwanger, J., Jarmin, R. S., & Miranda, J. (2013). Who creates jobs? Small versus large versus young. Review of Economics and Statistics, 95(2), 347-361.‏ ##Hafez Nia, MR (2001). Introduction to Research in Humanities, Tehran, Khome Publications.[in Persion]. ##Henrekson, M. (2005). Entrepreneurship: a weak link in the welfare state?. Industrial and Corporate change, 14(3), 437-467.‏ ##Johnson, S., McMillan, J., & Woodruff, CH. (2005). American Economic Association. The American Economic Review, 92(5), 1335-1356. ##KarimiTecanlo, Z., Ranjpour, R. (2014). Panel Data Econometrics. Tehran, Ghom Publications.[in Persion] ##KazemiTorqban, M., & Mubarak, M.H. (2012). The Effect of Entrepreneurship on Iranian Economic Growth Using Bayesian Averaging Approach. Journal of Entrepreneurship Development, 5(3):125-144.[in Persion] ##Kuckertz, A., Berger, E. S., & Mpeqa, A. (2016). The more the merrier? Economic freedom and entrepreneurial activity. Journal of Business Research, 69(4), 1288-1293.‏ ##McMillan, J., & Woodruff, C. (2002). The central role of entrepreneurs in transition economies. Journal of economic Perspectives, 16(3), 153-170.‏ ##Mohammadzadeh, Y., Hekmati Farid, S., & Miraliashrafi, K. (2016). The effect of economic freedom on entrepreneurship development in selected countries. Journal of Entrepreneurship Development, 9(2), 357-376. doi: 10.22059/jed.2016.60059.[in Persion] ##Naderi, M., & SHarbatoghlie, A. (2007). The Effect of Economic Freedom on Economic Growth. Iranian Journal of Economic research, 9(32), 1-29.[in Persion] ##Nyström, K. (2008). The institutions of economic freedom and entrepreneurship: evidence from panel data. Public choice, 136(3-4), 269-282.‏ ##Research Center of the Islamic Consultative Assembly; (2011). Review and critique of global indices of economic freedom (Heritage Foundation and Freezer Institute). Tehran.[in Persion] ##Reynolds, P. D., & Curtin, R. T. (2008). Business creation in the United States: Panel study of entrepreneurial dynamics II initial assessment. Foundations and Trends® in Entrepreneurship, 4(3), 155-307.‏ ##Samati, M., Shahnazi, R., & Dehghani, Z. (2006). Effects of Economic Freedom on Fiscal Corruption. Iranian Journal of Economic research, 8(28), 87-105.[in Persion] ##Saunoris, J. W., & Sajny, A. (2017). Entrepreneurship and economic freedom: cross-country evidence from formal and informal sectors. Entrepreneurship & Regional Development, 29(3-4), 292-316.‏ ##Sobel, R. S., Clark, J. R., & Lee, D. R. (2007). Freedom, barriers to entry, entrepreneurship, and economic progress. The Review of Austrian Economics, 20(4), 221-236.‏ ##Szirmai, A., Naudé, W., & Goedhuys, M. (Eds.). (2011). Entrepreneurship, innovation, and economic development. Oxford University Press.‏ ##Urbano, D., & Aparicio, S. (2016). Entrepreneurship capital types and economic growth: International evidence. Technological Forecasting and Social Change, 102, 34-44.‏ ##Verheul, I., Wennekers, S., Audretsch, D., & Thurik, R. (2002). An eclectic theory of entrepreneurship: policies, institutions and culture. In Entrepreneurship: Determinants and policy in a European-US comparison (pp. 11-81). Springer, Boston, MA##Wennekers, S., & Thurik, R. (1999). Linking entrepreneurship and economic growth. Small business economics, 13(1), 27-56##Zaranjad, M., & Anwari, A. (2005). Application of hybrid data in econometrics. Journal of Economic Research, 2)4), 21-52.[in Persion]##

XML

PDF 565.62 K

Extended Abstract

Full Text in second language