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Entrepreneurship Factors Among Developed Countries and Emerging Regions

Entrepreneurship Factors Among Developed Countries and Emerging Regions The paper contributes to the understanding of entrepreneurial activity by assessing the relative importance of eight entrepreneurial readiness factors across countries in different regions and stages of economic devel- opment. Drawing on the literature, this paper identifies eight principle national entrepreneurial readiness factors (NERFs) as (1) business freedom; (2) investment freedom; (3) investor protection; (4) property rights protection; (5) technological readiness; (6) innovation; (7) freedom from corruption; and (8) access to risk capital. NERF country data is subjected to a linear regression analysis for each factor’s influence on the sum of all eight factors which is called a country’s National Entrepreneurial Readiness Value (NERV). Six South East European countries, eight South American countries, ten South East Asian countries, and six West African countries are compared against one another and the benchmark of the four largest G7 economies. Results of this analysis are presented and show that inves- tor protection, property rights protection, and free- Mark D Potts, JD (corresponding author) dom from corruption are the most impactful entre- Director of Personal Financial Planning Program preneurial readiness factors. These findings present College of Business Administration future research implications of how these results link Central Michigan University to endowments and relate to improving entrepre- Email: mark.potts@cmich.edu neurial readiness. Address: Sloan Hall 301 Mount Pleasant, Michigan, USA Keywords: entrepreneurship, emerging markets, ORCID: 0000-0002-7826-4693 developing countries, developed countries Joseph A Affholter, PhD JEL classification: O57 AgBio Innovation Hub Director MSU Technologies Michigan State University Email: jaffholt@msu.edu 1. Introduction ORCID: 0000-0002-5406-7185 The importance of entrepreneurship in building strong national and regional economies is well estab- Sydney Harless, BSBA lished in the literature. (Wennekers and Thurik 1999; Honors Student Ács and Szerb 2007; Carree and Thurik 2010; Ács et College of Business Administration al. 2016). Policy makers recognize that new and small Central Michigan University businesses are the primary sources of job creation Email: harle1s@cmich.edu and serve as major agents of change within a nation ORCID: 0000-003-1922-1527 (European Commission 1999). While much attention is Copyright © 2021 by the School of Economics and Business Sarajevo 82 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS paid to policies supporting entrepreneurial activity in development among 30 developing economies across the most developed economies, less is known about four- distinct geographical regions. the status and development of entrepreneurial sup- In this study, the sum of the 8 NERFs (each normal- port factors among developing economies. Even less ized to a 100 point scale) is referred to as the national is known about the degree of influence each factor entrepreneurial readiness value (NERV) for a given has in the early stages of development of a national country. The sensitivity of the NERV to differences in entrepreneurial ecosystem. This goes to the heart of each of the 8 contributing NERFs is assessed using entrepreneurship, and the development of both met- linear regression analysis. This paper tests several hy- rics and policies consistent with it. potheses related to the relative importance of eight Despite its economic importance, the rate of en- key factors in efforts to establish an advanced entre - trepreneurship differs widely between nations around preneurial ecosystem among developing nations. the world (Freytag and Thurik 2007). A variety of Hypotheses were tested by selecting developing resource, cultural, behavioral, legal and other institu- economies of similar sizes and stages of development tional factors are believed to play important roles in from within four rapidly developing geographically the complex process by which entrepreneurs accept distinct regions, each with the availability of robust the risk of establishing a business and entering a third-party economic scoring data. The study inte- market. Scholarly studies over two decades have ex- grates the high-quality, third-party datasets into an amined entrepreneurial intent and decision making analytical framework that can help scholars develop at the individual level. (Vullo, Morando, and Platania more detailed theoretical constructs to explain the 2017). Even micro factors, such as individual resources impact of institutional factors and on entrepreneurial (Bhagavatula et al. 2010) and entrepreneurial cogni- behavior and policy makers allocate resources and tion (Lim, Trimi, and Lee 2010; Mitchell and Shepherd set priorities. For each nation and region this study 2010) have been examined and shown to have an im- asks three questions: how well does the nation/re- portant influence on individual perceptions of entre - gion score against an established global performance preneurial opportunities within a given environment. index (established by the 4 largest of the G7 econo- This paper builds upon the literature by examining mies)? And how does it compare to its peers within how several long-term comparative institutional data- its region? Are there overlapping institutional models sets from reputable international sources might be and strengths within each region that nearby nations used to assess the level of entrepreneurial readiness can draw on to build a more effective institutional of developing national economies relative to a bench- framework to support entrepreneurship? mark readiness level computed from the four largest The paper is structured as follow. The preceding national economies among the G7 nations. These introduction describes the intent and purpose of the national economies (referred to herein as G4) are the paper. This is followed by: Literature Review – setting U.S., Japan, Germany, and Great Britain. In particular, the scholarly context of the study and defines the this paper seeks to complement the work that has NERFs that are used in it; Theoretical Framework – dis- been on individual entrepreneurial readiness factors cussing each NERFs place in the literature and ration- by assessing a series of national entrepreneurial readi- ale for inclusion; Hypothesis and Methodology – the ness factors (NERFs). Specifically, it examines a series hypotheses being tested, the methods used to test of eight institutional-level NERFs that correspond them; Results – tabular and graphical comparisons generally to the four readiness dimensions defined summarizing the tests and illustrating regional simi- by the literature and identified above. (Stenholm, Ács, larities and differences; Discussion – discussing the and Weubker 2013; Urban and Muzamhindo 2017) importance of the rule of law readiness factors and This study builds upon a previous work examining next step opportunities for regional improvement; the same 8 NERFs in the narrower contexts of South and Conclusions and Future Research - assessing po- East Europe (Potts, Affholter, and Puia 2015) and West tential implications and limitations of the study and Africa (Puia, Affholter, and Potts 2015). Other schol- potential future directions. ars, notably Dempster and Isaacs (2017), have tested a similar set of questions by a different mechanism, looking at 47 countries over 17 years evaluating Total 2. Background Literature Review Entrepreneurial Activity (TEA), economic freedom, corruption and human capital. This study is the first Entrepreneurship scholars have begun to identify attempt to systematically organize and assess the and prioritize the critical institutional factors that im- relative importance of the eight selected NERFs in pact entrepreneurial readiness within geographical the early stages of national and regional economic or national contexts. Studies by Autio and Ács (2010) SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 83 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS and Bowen and De Clerq (2008) provided empirical institutions are most likely to explain the differences in evidence that new businesses are influenced by coun- entrepreneurial activities. A number of recent studies try-level institutions (e.g., Autio and Ács 2010; Bowen have sought to identify key institutional factors that and De Clercq 2008). Other scholars illustrated that may be important in countries that have a national- micro-level factors like people’s resources were impor- level institutional environment (Stenholm, Ács, and tant factors (Bhagavatula et al. 2010; Davidsson and Weubker 2013; Walter and Block 2016); however, more Honig 2003). Lim, Trimi, and Lee (2010) then showed consideration of these differences is required (Schillo, that entrepreneurial cognition mediates between in- Persaud, and Jin 2016). stitutions and entrepreneurship such that it creates in- The institutional environment in any country or stitutions, changes individuals’ perceptions, and influ- economic region is complex, comprised of a number ences entrepreneurship or the opportunities available of formal institutions with a few institutions likely in an environmental setting (Terrell and Troilo 2010). being most important. Examination of the relative The Global Entrepreneurship Research Association importance of these institutional factors is seldom (2018) provides meaningful data through their Global addressed in the extant literature. Holmes et al. (2013) Entrepreneurship Monitor (GEM) reports to accom- argue that political, regulatory and economic institu- pany the scholarly literature. tions are the most important in establishing and de- As pointed out by Schillo, Persaud and Jin (2016) fining the environment in which businesses operate. and others (Raza, Muffatto, and Saeed 2019; Ács, In identifying these categories, the authors build and Autio, and Szerb 2014), however, relatively few stud- test a unique set of measures of formal institutions ies have effectively examined the specific institutional and offer suggestions for future research. Responding factors that impact entrepreneurial activity and intent to a call for closer examination of these institutional on a national scale. More recently publications show factors, Raza, Muffatto, and Saeed (2019) conducted that scholars are interested on factors impacting en- a review of >15 years of entrepreneurship literature trepreneurial activity at a national level (Pfiefer et al. to identify studies that have empirically explored the 2021; Kryeziu and Coşkun 2018) and across countries impact of these three formal institutions on entrepre- (Sugiyanto and Yolanda 2020; Siljak 2018). These and neurial behavior. In doing so, the authors identified other authors have suggested that such factors tend sixty-one studies that examined the impact of certain to modulate the rate of entrepreneurship at the na- political, regulatory, and/or economic institutions in tional level (Ács et al. 2012; Audretsch and Keilbach some form on the various types of entrepreneurship. 2008). Importantly, Schillo, Persaud, and Jin (2016) They found that no study had addressed the relation- suggest that these institutional factors serve to modu- ship between entrepreneurial behavior and political, late the conversion of individual entrepreneurial read- regulatory and economic institutions in a single study. iness (IER) into startup intent at the individual level, Moreover, the examination of multiple factors within with some factors acting more directly than others. each of these formal institutions is only rarely found Cao and Shi (2021) further suggest that these modu- in the literature. Clearly, the study of institutional fac- lating affects may operate in a fundamentally different tors examining national-level entrepreneurship is a manner in advanced verses a developing economies. field still in its early stages of development; and one Regardless of the specific theoretical lens through in which key impact factors are still being identified which one views its impact, the institutional frame- and characterized. As such, theories that explain insti- work within any country or region is comprised of a tutional impact on entrepreneurial behavior are still in complex series of formal and informal factors that their formative stages. A brief examination of some of have an influence on entrepreneurial activity and this literature is of relevance to this study. decision making. The literature places these factors in The present research responds to the call for stud- four pillars (or dimensions): the regulatory, the cog- ies that examine specific institutional factors that can nitive, the normative, and conducive environments. be assessed both prospectively and retrospectively, (Kostova 1997; Manolova, Eunni, and Manev 2008; and addressed through policy decisions as a country Busenitz, Gomez, and Spencer 2000; Stenholm, Ács, seeks to migrate through various stages of economic and Weubker 2013; Urban and Muzamhindo 2017) development; changes in which it might encour- In recent years, entrepreneurship scholars have age entrepreneurial behavior (De Clercq, Dimov, and begun to examine which factors operate at the indi- Thongpapanl 2013; Stenholm, Ács, and Weubker 2013; vidual level to influence rates of entrepreneurship, Schillo, Persaud, and Jin 2016). The present study em- especially in high-growth, knowledge-based startup ploys a set of 8 distinct measures (i.e. factors) that can categories (Thornton, Ribeiro-Soriano, and Urbano be accessed through extant datasets to assess the 2011). Ács et al. (2012) have argued that national-level impact of several formal institutions on computed 84 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS differences in national entrepreneurial readiness. development of a supportive national entrepreneur- The sum of these 8 factors is referred to herein as ial ecosystem (Potts, Affholter, and Puia 2015). These the National Entrepreneurial Readiness Value (NERV). entrepreneurial readiness factors include: Business Previous research on such relationships has tended to Freedom, Investment Freedom, Investor Protection, focus on the relationship of single institutional factors Property Rights Protection, Technological Readiness, on national entrepreneurship (e.g., Fuentelsaz, Maicas, Innovation, Freedom from Corruption, and Access and Montero 2015; Kim and Li 2014; Nyström 2008). to Risk Capital. Highly developed economies, such The present study uses published country-level as the G7 nations, tend to score highly in all eight of data to examine 8 well defined factors that fall within the factors. Less developed nations score lower. The the formal institutions described by Holmes et al. order of importance of these factors and how they (2013). Each of these factors offers either direct or influence one another over time is poorly understood. indirect support to entrepreneurial behavior within Consequently, policy makers, entrepreneurship schol- a national entrepreneurial ecosystem; thereby, con- ars, and economic development advisors lack the kind tributing to the overall entrepreneurial readiness of a of robust temporal and theoretical framework needed nation. This study takes the view that structural insti- to effectively evaluate potential priorities and actions, tutions, such as regulatory boundaries, as well as po- and determine best-uses of limited resources to im- litical and cognitive dimensions have a direct impact prove their entrepreneurial readiness. In this study on the national entrepreneurial ecosystem, whereas each of the 8 factors are each referred to as a national other dimensions, such as the education system, entrepreneurship readiness factor (NERF), or together technological awareness and general economic en- as NERFs. The sum of these 8 NERFs (each normal- vironment have an impact that is important, but less ized to a 100 pt. scale) is referred to as the National direct. One might expect a disproportionate impact Entrepreneurship Readiness Value (NERV). This study by some of these factors over others in early-stage examines the level of entrepreneurial readiness of 30 development. This study shows that 3 rule of law re- developing nations using these NERF and NERV meas- lated factors (i.e. Investor Protection, Property Rights ures. As such, it is important to consider the context Protection, and Freedom from Corruption) of the 8 of each factor within the entrepreneurship and eco- factors examined do contribute disproportionately to nomic development literature. the computed differences in total readiness (i.e. NERV ) values among a group of 30 developing economies in 4 distinct economic regions examined. 3.1. Factor 1 – Business Freedom Entrepreneurs engage strategically in risk and un- certainty. (Puia and Potts Forthcoming). One possible Business Freedom is one of the subcomponents of explanation to the importance of the three rule of law economic freedom (Miller and Kim 2013). More gener- factors examined in this paper is that they reduce the ally, Fuentelsaz, Maicas, and Montero (2018) show that amount of systematic risk to entrepreneurs, isolate high levels of economic freedom serve to catalyze business risk (or unsystematic risk), resulting in more economic exchange and facilitate efficiencies. Bryant efficient systems and greater predictable rewards to and Javalgi (2018) demonstrate that economic free- the entrepreneur. This paper sets a foundation for the dom also attracts inward foreign direct investment. examination of the mechanisms and impact of rule of Other recent evidence suggests that trade freedom law related factors. This study appears to be the first to and economic freedom have a more significant impact determine the disproportionate influence among the on the level of start-up activity in developing econo- 8 institutional (i.e. NERF) factors examined. As such, it mies than in developed economies (Roman, Rusu, and poses some important questions for both entrepre- Stoica 2018). The Business Freedom factor, within the neurship scholars and policy makers related to the as- context of economic freedom, addresses the level of sessment and advancement of national entrepreneur- freedom an entrepreneur has when launching a busi- ship ecosystems. ness, changing direction, and operating without un- necessary barriers. It is established in the literature that more successful democratic economies have significantly fewer barriers and regulations to limit 3. Theoretical Framework market entry (Djankov et al. 2002). Similar studies find Surveys of the literature identified eight promi- that the more complex the business startup process, nent factors that are measured annually by repu- the higher capital requirements and the more detri- table international organizations and offer both mental it is to cultivating entrepreneurship (Dreher prospect and retrospective insight into the state of and Gassebner 2013). Therefore, understanding the SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 85 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS number of steps and procedures required to launch investor protection score for this factor. Countries a business in a country is crucial information when are scored on a 100 point scale, with 100 being the assessing a nation’s capacity to increase its level of highest level of investment freedom. The Heritage entrepreneurship. Foundation (2019) creates its score using 25 factors Business Freedom is included among the eight that can increase or decrease a country’s score. These critical entrepreneurial readiness factors included in factors relate to the national treatment of foreign in- this paper as a factor having a direct impact on entre- vestment, foreign investment code, restrictions on preneurial readiness. This paper utilizes the Heritage land ownership, expropriation of investments with- Foundation’s (2018) business freedom score to assess out fair compensation, foreign exchange controls, this factor. In it, countries are scored on 100 point and capital controls. The Heritage Foundation takes scale using data from the World Bank’s Doing Business its data from standardized official government pub - (2019) and giving equal weight to the following ten lications for each country, Economist Intelligence factors: the number of procedures required to start Unit, U.S. Trade Representative, and United States a business, the time required to start a business, the Department of Commerce. cost required to start a business, the minimum capital required to start a business, the number of procedures required to obtain a license, the time required to ob- 3.3. Factor 3 – Investor Protection tain a license, the cost required to obtain a license, the time to close a business, the cost to close a busi- While bureaucratic hurdles can restrict investment, ness, and the recovery rate associated with closing strong investor protection attracts inward firm invest - a business. The Business Freedom factor is reported ment and leads to higher firm value. (Giofré 2014; Lan in the dataset using a 100 point scale, with 100 be- and Wang 2004). Moreover, Perotti and Volpin (2007) ing the highest level of business freedom. (Heritage found in a broad cross-section of countries and in- Foundation 2019). dustries that investor protection was more critical to market entry than the level of financial market devel- opment. Furthermore, they found entry rates and the total number of producers are positively correlated 3.2. Factor 2 – Investment Freedom with investor protection in financially dependent sec - Investment freedom examines the freedom one has tors. (Perotti and Volpin 2007). Recent literature has when making an entrepreneurial investment within examined the relationship between shareholder pro- a nation. It is known that investment freedom maxi- tection and success of financial exchanges. (Bernstein, mizes entrepreneurial opportunities, expands eco- Dev, and Lerner 2018). Even in countries with high nomic activity, and creates jobs. (Heritage Foundation levels of venture capital activity, innovation, and fi- 2018). Foreign direct investment plays an important nancial market development, shareholder protection role in economic development (Zitta and Powers was very important for exchange success. (Bernstein, 2003). The literature on the subject is well developed, Dev, and Lerner 2018). Notably, countries with bet- stretching over several decades (Dunning 1973; Porter ter shareholder protection experienced younger, 1990). More recent literature examines the effect of less profitable, but faster growing companies which Foreign Direct Investment (FDI) on a more local level raised more capital through second-tier exchanges. by documenting its potential for positive develop- (Bernstein, Dev, and Lerner 2018). Investor protection mental impact within regions, cities, and industrial helps create an environment in which entrepreneur- clusters. (Iammarino 2018). The current literature also ship can thrive and is included as an entrepreneurial explores the role that social and cultural differences readiness factor with a direct impact and national-lev- can have on FDI, as seen through the expansion ac- el entrepreneurial readiness. tivities of large multinational enterprises. (Beugelsdijk Investors experience protection primarily through et al. 2018). Motivation for FDI is also a current topic judicial effectiveness where judicial systems ensure of the literature. (Park and Choi 2014). While it is im- laws are fully respected and protect the rights of all pacted by cultural factors, it is principally a function of citizens, and providing a foundation for economic regulations and policies that either encourage or dis- growth. (Heritage Foundation 2018). The Heritage courage investment. While its impact is indirect, the Foundation (2018) scores countries based on “judicial widespread presence of investment freedom in the effectiveness”. A country score is an equal weighting of entrepreneurship and economic development litera- judicial independence, quality of the judicial process, ture establishes it as an important institutional factor. and favoritism in decisions of government officials. This paper utilizes the Heritage Foundation’s (2018) The Heritage Foundation (2019) draws on data from 86 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS the World Economic Forum and World Bank to cre- ownership protection, risk of expropriation, and qual- ate its score. This paper uses judicial effectiveness to ity of land administration. The Heritage Foundation quantify Investor Protection because it appropriately (2019) uses data from the World Economic Forum, evaluates the judicial function of protecting private World Bank, and Credendo Group. Countries are party property rights from unlawful acts by govern- scored on a scale of 100 points, with a score of 100 be- ment or other private parties. Countries are scored on ing the highest level of property rights protection. a 100 point scale, with 100 being the highest level of judicial effectiveness. 3.5. Factor 5 – Technological Readiness The development and adoption of technology plays 3.4. Factor 4 – Property Rights Protection an enormous role in entrepreneurial innovation and While the Investor Protection NERF examines how financial opportunities. Increased development and foreign direct and other investors are treated, the use of technology helps drive economic growth pro- Property Rights Protection factor examines how real viding greater innovation leverage to entrepreneurs; property and intellectual property is treated, and how thereby, creating an expanding virtuous cycle of in- property laws are made and administered within a na- novation (Ács, Autio, and Szerb 2014). Adoption and tion. Protection of property rights plays a direct and integration of technology is extremely important in crucial role in regulating entrepreneurial activity, sup- developing nations, as improvements in competitive- porting entrepreneurial activity by giving citizens con- ness and productivity can be achieved by adopting fidence to save their income and make long term plans existing technologies. (Herman 2018). As such, the with intellectual and physical property because they ability to adopt and deploy technology within a na- know it is safe from theft or expropriation. (Heritage tion is an important indicator of entrepreneurial readi- Foundation 2018). Chowdhury (2016) showed, for ex- ness at the institutional level. ample that new firm startup is positively related to Data used to measure technological readiness is property rights protection. Fuentelsaz, Maicas, and taken from World Economic Forum. (Schwab 2017). Montero (2018) further demonstrated that weak pro- The Technological Readiness factor (also referred to as tection of property rights reduced entrepreneurial Networked Readiness) measures the propensity and activity and innovation. However, Aidis, Estrin, and capability of a region (or country) to take advantage Mickiewicz (2009) suggested that property rights pro- of opportunities provided by communications and tection has a more significant impact in countries with information technology. Data for Macedonia and Ivory a lower level of development than in countries where Coast are from 2016 (Schwab) and Myanmar data is the rule of law is already high. To this end, a five-coun- from 2015 (Schwab) due to lack of the availability of try survey of small private manufacturing firms in more recent data. The raw score is based on a scale post-communist Central and Eastern European coun- of zero to seven with seven being the highest level of tries showed that weak property rights discouraged technological readiness. To convert the scores to a 100 firms from reinvesting their profits, even when other point scale, the authors divided the reported score by sources of financing (e.g. bank loans) were available. seven and multiplied it by 100. (Johnson, McMillan, and Woodruff 2002). The authors also found that entrepreneurial firms were willing to reinvest their profits in geographies where property 3.6. Factor 6 – Innovation rights were strong but not where property rights were weak. Examining Latin American countries, Salinas, Whereas technological readiness may lead to in- Ortiz, and Muffatto (2019) identified that higher lev - creased innovation, studies have shown that larger els of Property Rights Protection correlated with fewer companies outperform smaller ones in their innova- own-account workers and an increased number of tion departments; due to a strong feedback loop from business startups. The authors suggest that improved innovation to increased R&D expenditure. (Carree et property rights protection encourages individuals to al. 2002). A recent in Kosovo showed that improved advance from necessity entrepreneurship to higher innovation characteristics also improve SME growth potential entrepreneurship. in a developing economy. (Mahmutaj and Krasniqi This study utilizes the Heritage Foundation’s 2020). The innovation factor here examines how (2018) Property Rights Protection score to assess this much is spent on research and development (R&D) import NERF. The factor is an average of physical prop- across an economy. Technological progress generally erty rights, intellectual property rights, strength of drives the improvements in scale, speed, capacity and SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 87 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS productivity needed to build wealth in a developing corruption and reduced levels of entrepreneurship economy. As such, developing regions and nations and economic development (Williams et. al. 2017). must factor in their technological capacity into their Corruption introduces coercion and economic insecu- growth strategy. (Peris-Ortiz, Ferreira, and Fernandes rity to economic relations; of greatest concern is sys- 2018). Surprisingly, cultural factors can play an im- temic government corruption. Corruption, cronyism, portant role in the speed with which new forms of and nepotism may also be intertwined. (Williams and innovation are received. The examination of the re- Yang 2017). The role that systemic corruption plays in lationship of between innovation and culture is new economic development and entrepreneurship estab- to the literature. (Lounsbury et al. 2018). Openness to lishes its restraint as a key factor in national entrepre- digitalization appears to differ between nations, and neurial readiness. (Heritage Foundation 2019) also impacts the rate and process by which a develop- This paper uses the government integrity scores ing economy might rapidly advance in the presence reported by the Heritage Foundation to evaluate of serious limitations in readiness in other areas (Cao Freedom from Corruption because this score ap- and Shi 2021). While its impact is indirect, Innovation propriately captures the practices that reduce public is an important institutional factor impacting national trust and increase the cost of economic activity. The entrepreneurial readiness. Heritage Foundation (2019) derives its government The Innovation score is taken from World corruption score from six sub factors: (1) public trust in Economic Forum’s Global Competitiveness Report. politicians; (2) irregular payments and bribes; (3) trans- (Schwab 2017). It assesses the output of a country parency of government policymaking; (4) absence of based on several innovation factors discussed above. corruption; (5) perception of corruption; and (6) gov- Data for Macedonia and Ivory Coast are from 2016 and ernment and civil service transparency. The Heritage Myanmar data is from 2015 due to lack of the availabil- Foundation (2019) draws on data from the World ity of more recent data. The raw is score out of a scale Economic Forum, World Justice Project, Transparency of zero to seven with seven being the highest level of International, and TRACE International. innovation. To convert the scores to a 100 point scale, the authors divided the reported score by seven and multiplied it by 100. 3.8. Factor 8 – Access to Risk Capital While its impact is indirect the availability of early- stage investment capital is an important factor in 3.7. Factor 7 – Freedom from Corruption any regional or national entrepreneurial ecosystem While some studies suggest limited or expected low- (Spigel and Harrison 2018). In business incubators, for level corruption has minimal impact on business for- example, available capital is a factor in an incubator’s mation activities (Campbell and Cordis 2014), the vast success (Harper-Anderson and Lewis 2018). In con- majority of studies suggest that corruption serves to trast, some studies has suggest that the conventional restrain economic growth because entrepreneurs are belief that access to risk capital is required in order hesitant to invest or rely on legal amenities (Anokhin to cultivate entrepreneurship may not be true. (Kreft and Schulze 2009). This and other studies suggest its and Sobel 2005). Specifically, Kreft and Sobel’s (2005) impact is pervasive and direct. If entrepreneurs do causality tests concluded that entrepreneurial activity not have adequate resources to overcome corrup- causes increased venture funding; not the other way tion, they are vulnerable (Chowdhury 2016), and may around (Kreft and Sobel 2005). Whether increased en- choose to change locations or refrain from launching trepreneurial activity leads to availability of more ven- altogether. As such, corruption discourages potential ture capital or vice versa, few would argue the impor- stakeholders from investing in economic activities tance of risk capital in driving entrepreneurial growth. such as innovation when the payoff cannot be guaran- Whether it is a leading or lagging indicator, Access to teed (Anokhin and Schulze 2009). Reports show that risk capital remains an important factor. corruption hinders entrepreneurial activity and inno- Access to risk capital is taken from World Economic vation (Fuentelsaz, Ferreira, and Fernandes 2018). It Forum’s Global Competitiveness Report. (Schwab can also decrease rates of entrepreneurship in a com- 2017). Data for Macedonia and Ivory Coast are from munity (Lecuna and Chávez 2018). This can have a par- 2016 and Myanmar data is from 2015 due to lack of ticularly devastating impact in developing countries the availability of more recent data. Here the authors by deepening poverty and reducing development took the raw scores for financing through the local activity (Shah 2018). A recent study in Montenegro, equity market and venture capital availability. Those for example, shows the direct relationship between scores are out of a scale of zero to seven with seven 88 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS 4.2. Model and Methodology being the highest level of financing through local eq- uity markets and venture capital. To scale the scores, Table 1 shows the list of 30 study nations and 4 the authors averaged the two scores, divided the av- benchmark nations used in this study. The nations are erage raw score by seven, and multiplied quotient by grouped by region and the GDP, population and GDP 100. per capita is provided for each. As can be seen in the regions are grouped together not only by geographi- cal location and cultural nearness, but also because they have similar GDP-to-population ratios which 4. Hypotheses and Methodology makes them comparable regarding the NERFs exam- 4.1. Hypotheses ined in this report. This paper examines the significance of the eight na- Table 1. Key Economic Factors for Each Country tional entrepreneurial readiness factors (NERFs) de- in the Study scribed above. The sum of the 8 NERFs is referred to herein as the national entrepreneurial readiness value GDP Population GDP per Country (NERV). While the literature clearly supports the im- ($, billions) (millions) Capita ($) portance of these factors, their relative contributions South East European countries included in this study: is not known. It is unlikely, for example, that they con- Albania 13.0 2.90 4,496 tribute equally to the total entrepreneurial readiness Bulgaria 39.6 7.10 5,577 at all stages of development. As such, the authors Croatia 54.8 4.20 13,060 seek to test the hypothesis that the factors contribute Macedonia 11.3 2.07 5,465 disproportionately to the total entrepreneurial readi- Romania 212 19.8 10,700 Serbia 41.4 7.00 5,919 ness (i.e., NERV) of the 30 developing nations under West African countries included in this study: examination. Furthermore, the authors postulate that Benin 9.27 11.1 835.5 the Technological Readiness, Innovation and Access Ivory Coast 40.4 24.3 1,663 to Risk Capital factors correlate less with total readi- Ghana 47.3 27.6 1,715 ness in early stage economies than Freedom from Liberia 2.16 4.40 490.5 Corruption and other factors that protect the owner- Senegal 16.4 15.4 1063 ship interests of entrepreneurs. To this end, the au- Sierra Leone 3.77 6.40 589.7 thors sought to test four simple hypotheses using the South American countries included in this study: publicly available entrepreneurial readiness factor Venezuela 482 31.0 15,560 data described above. These are as follows: Colombia 309 48.7 6,349 Ecuador 103 16.5 6,246 Peru 211 31.5 6,711 Hypothesis 1: The individual national entre- Chile 277 18.2 15,220 preneurial readiness factors (NERFs) do not cor- Uruguay 56.2 3.50 16,040 relate equally with differences in total National Paraguay 29.7 6.90 4,309 Entrepreneurial Readiness Values (NERV) of the 30 Argentina 638 43.6 14,620 developing countries examined in the study. South East Asian countries included in this study: Thailand 455 69.0 6,597 Hypothesis 2a: Investor Protection, Property Myanmar 69.3 53.4 1,299 Rights and Freedom from Corruption correlate Vietnam 201 92.6 2,174 more strongly with the differences in total NERV Philippines 314 104 3,010 than the other 5 NERFs among the 30 nations Indonesia 1,016 259 3,927 Malaysia 315 31.7 9,921 studied. Cambodia 22.2 15.8 1,402 Nepal 24.2 28.9 836.4 Hypothesis 2b: Investor Protection, Property Laos 16.9 7.2 2,341 Rights and Freedom from Corruption account for Bangladesh 250 162 1,546 >75% of the variation in total NERV between the G4 Benchmark Developed Countries 30 early stage developing economies. Benchmark GDP (in US Population GDP per Country trillions) (millions) Capita Hypothesis 3: Freedom from Corruption corre- US 19.4 323 59,980 sponds most strongly with the differences in total UK 2.62 65.6 39,970 National Entrepreneurial Readiness Values (NERV) Japan 4.87 127 38,390 Germany 3.68 82.7 44,460 scores between the 30 developing nations. (Schwab 2017). SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 89 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS The authors compare countries using publicly are tabulated in the Table 2A. The data shown illus- available data and a scaled scoring system to establish trates that all 8 factors correlate positively with total a common numerical basis for comparison. Where NERV. However, the coefficients for Freedom from necessary the reported for each factor was normalized Corruption, Property Rights Protection, Investor to a 100-point scale as described below. Total NERV Protection are substantially higher than those of the scores were calculated as the sum of all 8 NERFs for other factors. Moreover, the p-values for these factors each nation. indicate a high level of significance. After compiling data, the authors completed a The data provides a meaningful test of the hy- series of statistical tests and ANOVA linear regression potheses developed in this study. Hypothesis 1 is con- to test their hypotheses and explore the effect of the firmed, in that there is a wide range of R correlation eight individual NERFs on total NERV for each nation. factors (R = 0.888, 0.796, 0.773, respectively) and sig- -10 nificance (p-values all <10 ) between the top three readiness factors and the bottom three factors (with R of 0.484, 0.465, 0.251, respectively, and p-values of 5. Results -5 >10 ). 5.1. Regression Analyses and Hypothesis 2A is also confirmed based on the Hypotheses Testing single factor regression data shown in Table 2A. Single factor correlation coefficients (R ) were com- Specifically, those NERFs associated most directly with piled for each of the entrepreneurial readiness fac- rule of law, in protecting property and investors cor- tors (i.e., NERFs) vs. the total NERV values for each of respond most strongly with the level of NERV totals the 30 nations studied. The results of these analyses across the 30 nations examined. To test Hypothesis Table 2. Single Factor and Multi-Factor Regression Analysis for Individual Readiness Factors vs Total National Entrepreneurial Values (NERV) among 30 Developing Countries A. Single Factor Regression (Single Factor vs Total National Entrepreneurial Readiness Value) Correlation Readiness Factor P value Coefficient (R ) -15 Property Rights 0.888256 7.47375 x 10 -11 Freedom from Corruption 0.795759 3.65135 x 10 -10 Investor Protection 0.773055 1.61847 x 10 -8 Technological Readiness 0.684615 1.71434 x 10 -7 Business Freedom 0.625518 1.97744 x 10 -5 Investment Freedom 0.483648 1.99120 x 10 -5 Innovation 0.465436 3.28997 x 10 -3 Access to Risk Capital 0.251087 4.79295 x 10 B. Three Factor Regression (Three Factors vs Total National Entrepreneurial Readiness Value) Correlation Selected Factors Coefficient (R ) Investor Protection Property Rights Protection 0.965324 Freedom from Corruption ANOVA Df SS MS F Significance F -19 Regression 3 55102.29436 18367.43145 241.264887 4.31457 x 10 Residual 26 1979.37306 76.12973309 Total 29 57081.66742 Coefficients Standard Error t Stat P-Value -6 Intercept 29.693677 5.331179 5.569815 7.52107 x 10 -6 Investor Protection 1.362889 0.222167 6.134530 1.74182 x 10 -6 Property Rights Protection 1.135211 0.187200 6.064156 2.08702 x 10 -3 Freedom from Corruption 0.804587 0.270010 2.978849 6.19517 x 10 90 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS 2B, the three top scoring factors were subjected to a Based on the data tabulated in Table 2B, multi-factor, ANOVA regression analysis. The R factor Hypothesis 3 is not confirmed. Whereas the authors for the analysis is 0.965, indicating that the three fac- hypothesized that Freedom from Corruption would tors together provide an enhanced correlation with be the most important institutional factor influencing the Total Entrepreneurial Readiness. The ANOVA sig- differences in national entrepreneurial readiness and -18 nificance factor is <10 , indicating an extraordinarily would, therefore, correlate most strongly with NERV high level of significance. The coefficients, p-values totals. In fact, it is the second strongest correlate of and other results of the regression analysis are listed NERV. The NERF that correlates most strongly with to- in Table 2B. These values suggest that 96.5% of the tal NERV is Property Rights Protection. variation in Total Entrepreneurial Readiness can be ac- counted for by the differences in Investor Protection (I), Property Rights Protection (P) and Freedom from 5.2. Tabular and Graphical Results Corruption (F). Based on these results, an equation can be constructed relating total Entrepreneurial Table 3 characterizes the NERFs of each region by Readiness (ER) to these three factors, as follows: comparing the mean score for each region against the G4 benchmark mean for that factor (“G4 benchmark”). ER = 29.695677 + 1.362889(I) + 1.135211(P) + 0.804587(F) A graduated tabulation was constructed for each re- gion evaluating each factor in terms of whether: (a) it (Equation 1) reached a level of at least 60% of the G4 benchmark In other words, ER represents a meaningful ap- (white background), (b) fell between 50% and 60% of proximation of the total NERV for an individual coun- the G4 benchmark (horizontal lined background) the re- try, yet only requires assessment of the three NERFs gional average for that factor or (c) was <50% of the G4 listed. benchmark (vertical and horizontal lined background). Table 3. Primary and Secondary Opportunities for Regional Improvement in 8 National Entrepreneurial Readiness Factors National Entrepreneurial South East G4 Benchmark West Africa South America South East Asia Readiness Factor Europe Average Direct Factors Business Freedom 68 56 63 61 85 Freedom from Corruption 40 41 38 32 76 Investor Protection 48 39 39 38 80 Property Rights Protection 59 38 47 45 85 Indirect Factors Technological Readiness 65 45 58 50 88 Innovation 45 43 43 47 78 Investment Freedom 71 67 61 43 81 Access to Capital 39 42 42 50 71 Average National Entrepreneurial Readiness 435 371 391 366 644 Value (NERV ) – of region Key: White = >60% of G4 Benchmark average Horizontal Lined Background: 50.1-59.9% of G4 Benchmark average Horizontal and Vertical Lined Background: <50% of G4 Benchmark average SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 91 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS Of the 18 lined rectangles, 11 (61%) of them fall Table 4 is the regression analysis for “Rule of Law” in the Investor Protection, Property Rights Protection National Entrepreneurial Readiness Factors vs Total and Freedom from Corruption categories. Moreover, National Entrepreneurial Readiness Value among 30 all the horizontal and vertically lined rectangles fall Developing Countries. The results of these 30 coun- into these categories of entrepreneurial readiness. tries are shown individually on Figures 1-5. On Figures Clearly, these are areas where substantial improve- 1-5, spider graphs illustrate the differences in the ment is needed. Other than these categories, the only entrepreneurial readiness factor averages among the other NERF with 3 lined rectangles is Innovation. It is four regions examined in the study. In each of these interesting to consider whether this may, in fact, be figures, the solid black outer line represents the aspi- a lagging (or following) indicator of entrepreneurial rational horizon, established herein as the G4 bench- readiness whereas the other factors are leading (pre- mark (and represents the mean of the scores of the requisite factors). What seems clear from this is that U.S., Japan, U.K. and Germany). the NERFs relating to the rule of law seem to be the areas where there is the greatest opportunity for improvement. Table 4. Regression Analysis for “Rule of Law” National Entrepreneurial Readiness Factors vs Total National Entrepreneurial Readiness Value among 30 Developing Countries Regression Statistics Multiple R 0.982508951 R Square 0.965323840 Adjusted R Square 0.961322744 Standard Error 8.725235417 Observations 30 ANOVA   Df SS MS F Significance F Regression 3 55102.29436 18367.43145 241.264887 4.31457E-19 Residual 26 1979.37306 76.12973309 Total 29 57081.66742         Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 29.69367705 5.331178748 5.569814567 7.52107E-06 18.73528219 40.65207191 18.73528219 40.65207191 Investor Protection 1.362888844 0.222166797 6.134529843 1.74182E-06 0.906218453 1.819559235 0.906218453 1.819559235 Property Rights Protection 1.135210724 0.187200124 6.064155822 2.08702E-06 0.750415357 1.52000609 0.750415357 1.52000609 Freedom from Corruption 0.804586895 0.270099894 2.978849357 0.006195175 0.249388612 1.359785178 0.249388612 1.359785178 92 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS Figure 1. Regional Entrepreneurial Factor Averages Compared to G4 Average Figure 1. Regional Entrepreneurial Factor Averages Compared to G4 Average G4 Average Balkan Average W. Africa Average S. America Average SE Asia Average Business Freedom Access to Risk Capital Investment Freedom Freedom from Corruption Investor Protection Innovation Property Rights Protection Technological Readiness Figure 2. Entrepreneurial Factors in West Africa vs. G4 Average Figure 2. Entrepreneurial Factors in West Africa vs. G4 Average Benin Ivory Coast Ghana Liberia Senegal Sierra Leone G4 Average Business Freedom Access to Risk Capital Investment Freedom Freedom from Corruption Investor Protection Innovation Property Rights Protection Technological Readiness SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 93 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS Figure 3. Entrepreneurial Factors in South East Europe vs. G4 Average Figure 3. Entrepreneurial Factors in South East Europe vs. G4 Average Albania Bulgaria Croatia Macedonia Romania Serbia G4 Average Business Freedom Access to Risk Capital Investment Freedom Freedom from Corruption 0 Investor Protection Innovation Property Rights Protection Technological Readiness Figure 4. Entrepreneurial Factors in South American vs. G4 Average Figure 4. Entrepreneurial Factors in South American vs. G4 Average Venezuela Colombia Ecuador Peru Chile Uruguay Paraguay Argentina G4 Average Business Freedom Access to Risk Capital Investment Freedom Freedom from Corruption Investor Protection Innovation Property Rights Protection Technological Readiness 94 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS Figure 5. Entrepreneurial Factors in South East Asia vs. G4 Average Figure 5. Entrepreneurial Factors in South East Asia vs. G4 Average Thailand Myanmar Vietnam Philippines Indonesia Malaysia Cambodia Nepal Laos Bangladesh G4 Average Business Freedom Access to Risk Capital Investment Freedom Freedom from Corruption 0 Investor Protection Innovation Property Rights Protection Technological Readiness 6. Discusion the business decisions made by entrepreneurs. The contribution of each factor to the NERV of 6.1. Importance of Rule of Law Readiness these early stage economies is captured in equation Factors 1. While the equation is useful in characterizing the Based on the linear regression analyses referenced readiness of the thirty countries in the four regions above, it appears that the Investor Protection, Property examined, it would be reasonable to expect that it Rights Protection, and Freedom from Corruption would apply to developing countries in other regions NERFs are not only the three most impactful ones, as well. Testing that expectation with other regions they are also thematically related. These factors deal and future datasets will be important in establishing with fairness and justice within institutional systems the general applicability of this relationship. and their human administration. Each is identified as As shown in Figure 1, the SE European Countries a direct impact factor in this study, falling under the clearly standout among the four developing regions. regulatory and economic dimensions described by The region ranks highest in five NERFs, including Holmes et al. (2013) and the regulative dimension of the three identified in this paper as correlating most Schillo, Persaud, and Jin (2016). strongly with NERV totals across the 30 developing Based on the individual regression scores for economies. In contrast, the group of ten developing these factors, the rule of law factors (i.e. Investor SE Asian nations standout clearly in terms of provid- Protection, Property Rights Protection, and Freedom ing better Access to Risk Capital, while scoring poorly from Corruption) appear to account for well over 90% in terms of Investment Freedom and Freedom from of the variation in total NERV between the 30 nations Corruption. Indeed, all four regions score poorly examined in this study. This result is also consistent (<60% of the average of the G4 benchmark average) with a recognition of the strategic decisions regarding in terms of Freedom from Corruption (rule of law) and risk and uncertainty made by entrepreneurs (Puia and Innovation. The greatest diversity of scores among Potts Forthcoming) and how the rule of law may re- the regional average scores occurs in the category of duce systematic risk to thereby incentivize and reward Technological Readiness. In terms of regional strong SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 95 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS points, S. America scores well in Business Freedom, 60% threshold in Technological Readiness, while the Investment Freedom and Technological Readiness, remaining 2 score only modestly lower, achieving the trailing the SE Europe only slightly in these catego- 50-60% threshold. ries. West Africa excels in the category of Investment In contrast, the regions display a greater diver- Freedom. Yet it lags the other regions in terms sity and potential deficiency in terms of the Property of Property Rights Protection and Technological Rights Protection, Innovation and Freedom from Readiness. Corruption factors. While it is reasonable to assume These observations suggest that each of the de- that Technological Readiness is a precursor to devel- veloping nations and regions exhibits strengths and oping a culture of innovation, it is clearly insufficient weaknesses in terms of formal institutional factors to enable such innovation on its own. It likely requires impacting entrepreneurship. As one examines each concerted action around many of the entrepreneurial region in more detail, considerable diversity and nu- readiness factors discussed here. Even among the ance can be seen. One question that arises from this G4 developed economies, Innovation appears to lag study is whether cooperation between neighbors in Technological Readiness by a substantial margin. It a proximate region might be a low risk-high impact seems reasonable that the top 5 factors (Business route by which scholars, entrepreneurs, policy makers Freedom, Investment Freedom, Investor Protection, and investors within a region might draw on region- Technological Readiness and Property Rights ally extant knowledge to rapidly improve entrepre- Protection) may work together to facilitate an envi- neurial readiness among neighboring economies. ronment that brings forth sustained innovation, and improved access to capital, while progressively push- ing out the kind of corruption (i.e., the bottom three factors) that would hinder the capacity of entrepre- 6.2. Next-Step Opportunities for Regional neurial entities to scale-up, create value, and reinvest Improvement that value to support further scaling and innovation. Based on the analysis shown in Table 3, it is clear that Whether through this mechanism or others, it seems each region has a number of categories (white back- reasonable that the factors work in concert to create ground) in which their entrepreneurial readiness is entrepreneurial readiness. The interrelationships be- within 60% of the average of the aspirational bench- tween them deserve further study. mark represented by the average of the G4 developed While visually mapping these regional distinctions economies. Interestingly, all 4 regions exceed that is one objective of the report, another is to assess the threshold in terms of the Business Freedom marker diversity of entrepreneurial readiness in nearby states and all but one (SE Asia) reaches the 60% mark in within each of 4 developing regions. Two questions of Investment freedom. Similarly, all but one (SE Europe) interest in this study were: (1) Which NERFs are likely reaches the 60% threshold in Access to Capital. to be most important to future entrepreneurial pro- Granted, Sub-Saharan Africa and South America reach gress within these regions and countries? (2) Is there exactly that threshold, but do not exceed it. SE Europe enough diversity and depth within each region to reaches the 50-60% threshold (horizontal lined back- provide a basis for regional cooperation and knowl- ground) for this marker. What these observations sug- edge-sharing? If so, it may be possible for scholars, gest is that neither Access to Risk Capital, Business advocates and policy makers within these regions to Freedom, nor Investment Freedom are likely to be facilitate rapid sharing and adoption of best practices sources of major deficiency in entrepreneurial readi- in such a way as to catalyze improvement in entrepre- ness among the sub-regions examined. As discussed neurial readiness and an increase in economic growth above, there is some variation among them, but there and entrepreneurship in each region. appears to be a reasonable level of resource already The results of this study demonstrate consider- present in each region. In other words, it would ap- able heterogeneity in entrepreneurial readiness pear that some level of investable capital is available, (NERV) scores both within and between four diverse and there is a reasonable level of freedom in place to geographical regions. While culture clearly plays a pursue that investment capital (Business Freedom) role in many of these, it is unlikely that all the factors and deploy it (Investment Freedom). are equally influenced by cultural attributes. In other In terms of Technological Readiness, there also words, some are more cultural or subjective, while appears to be considerable resources available in others are more objective. For example, Technological all four of the regions studied. In particular, 2 of the Readiness is seen as talent focused and education 4 regions (SE Europe and South America) reach the related. It may be improved by shifting educational 96 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS 7. Conclusions and Future Research priorities and other resources. Innovation activity is also seen as a derivative of investment in talent, tech- nology and tertiary education. Like the study of entrepreneurship itself, the tools Other entrepreneurial readiness factors are more required to study progress of nations toward estab- complex and, perhaps, difficult to address due to cul- lishing a robust entrepreneurial ecosystem are a work tural factors. A lack of Business Freedom may reflect a in progress. This study suggests identifies eight impor - burdensome set of laws or it may reflect the comfort tant factors that contribute national entrepreneurial that a given society takes in minimizing risk and con- readiness, and that three of these factors account for trolling outcomes. In effect, the establishment of high most of the differences in National Entrepreneurial barrier, bureaucratic and regulatory processes may Readiness Values that are observable among the 30 be a means to providing reassurance, and a cultural countries examined in this study. Whether this is gen- means to minimize risk. However, it also translates into eralizable to all similar groups of developing econo- a series of statutory and enforcement mechanisms mies is unclear, and worthy of further study. And that may be modified and adjusted according to eco - while the study employs a broad range of robust, non- nomic and societal requirements. These mechanisms overlapping readiness factors, there is no guarantee may be altered without addressing the cultural factors that another set of factors would not better represent that led to those barriers. the similarities and differences between the 30 coun- A similar mixture of culture, statutory and en- tries examined here. Furthermore, the heterogene- forcement factors may also impact the development ous nature of the regions examined, both within and of Investment Freedom, Investor Protection and between them, may create a sample bias that is not Freedom from Corruption. In contrast, nations scor- accounted for within the scope of analysis and discus- ing high in Property Rights in this study are those that sion provided above. maintain a functional, fair and effective judiciary and Other research may examine how best to use ju- use it to secure and defend ownership rights within a dicial monitoring, media and public awareness efforts nation. This parameter is strongly tied to judicial effec - to reinforce property rights, diminish corruption and tiveness and consistency in applying the law within a extend investor protection at a regional or national culture. Cultural attributes, however, do factor heavily level. A further body of research would focus on the in establishing Freedom from Corruption within a na- development of best methods for communicating tion. The positive influence of consistent law enforce - and transferring entrepreneurial support structures ment and judicial processes, however, are modulated and knowledge within or between economic regions. by the degree of cultural acceptance of marketplace For example, South East Europe, scoring highest corruption. The results of this study suggest there may among the developing regions in this study, might be be a variety of interactions among the 8 readiness well suited to communicate lessons learned and best factors, such as those that link intellectual property practices to countries in other developing regions. rights with innovation. (Kale and Rath 2018) and those The study of national entrepreneurial readiness demonstrating that dynamic capabilities are integral factors among thirty developing nations provides in- to firm competitiveness and performance (Monteiro, sight into the policy development of robust entrepre- Soares, and Rua 2019). neurial economies at the national and regional levels. Consistent with the findings of Kreft and Sobel The work suggests clear opportunities for policy mak- (2005), the findings in this report suggest that Access ers to facilitate synergistic entrepreneurial “cross-train- to Risk Capital may be a following indicator, rather ing” between nations within all four regions examined. than a leading indicator, of entrepreneurial activity. In More work is needed to understand the best methods other words, investable capital becomes increasingly and practices for establishing beneficial cooperation available as entrepreneurial activity (and successes) in these regions to improve entrepreneurial readiness increase within a culture or a region. and success. 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Exploring coun- vestment in the United States. Thunderbird International try-level institutional arrangements on the rate and type Business Review 45 (3): 275-288. of entrepreneurial activity. Journal of Business Venturing 28 (1): 176-193. 100 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png South East European Journal of Economics and Business de Gruyter

Entrepreneurship Factors Among Developed Countries and Emerging Regions

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de Gruyter
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© 2021 Mark D Potts et al., published by Sciendo
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2233-1999
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10.2478/jeb-2021-0016
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Abstract

The paper contributes to the understanding of entrepreneurial activity by assessing the relative importance of eight entrepreneurial readiness factors across countries in different regions and stages of economic devel- opment. Drawing on the literature, this paper identifies eight principle national entrepreneurial readiness factors (NERFs) as (1) business freedom; (2) investment freedom; (3) investor protection; (4) property rights protection; (5) technological readiness; (6) innovation; (7) freedom from corruption; and (8) access to risk capital. NERF country data is subjected to a linear regression analysis for each factor’s influence on the sum of all eight factors which is called a country’s National Entrepreneurial Readiness Value (NERV). Six South East European countries, eight South American countries, ten South East Asian countries, and six West African countries are compared against one another and the benchmark of the four largest G7 economies. Results of this analysis are presented and show that inves- tor protection, property rights protection, and free- Mark D Potts, JD (corresponding author) dom from corruption are the most impactful entre- Director of Personal Financial Planning Program preneurial readiness factors. These findings present College of Business Administration future research implications of how these results link Central Michigan University to endowments and relate to improving entrepre- Email: mark.potts@cmich.edu neurial readiness. Address: Sloan Hall 301 Mount Pleasant, Michigan, USA Keywords: entrepreneurship, emerging markets, ORCID: 0000-0002-7826-4693 developing countries, developed countries Joseph A Affholter, PhD JEL classification: O57 AgBio Innovation Hub Director MSU Technologies Michigan State University Email: jaffholt@msu.edu 1. Introduction ORCID: 0000-0002-5406-7185 The importance of entrepreneurship in building strong national and regional economies is well estab- Sydney Harless, BSBA lished in the literature. (Wennekers and Thurik 1999; Honors Student Ács and Szerb 2007; Carree and Thurik 2010; Ács et College of Business Administration al. 2016). Policy makers recognize that new and small Central Michigan University businesses are the primary sources of job creation Email: harle1s@cmich.edu and serve as major agents of change within a nation ORCID: 0000-003-1922-1527 (European Commission 1999). While much attention is Copyright © 2021 by the School of Economics and Business Sarajevo 82 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS paid to policies supporting entrepreneurial activity in development among 30 developing economies across the most developed economies, less is known about four- distinct geographical regions. the status and development of entrepreneurial sup- In this study, the sum of the 8 NERFs (each normal- port factors among developing economies. Even less ized to a 100 point scale) is referred to as the national is known about the degree of influence each factor entrepreneurial readiness value (NERV) for a given has in the early stages of development of a national country. The sensitivity of the NERV to differences in entrepreneurial ecosystem. This goes to the heart of each of the 8 contributing NERFs is assessed using entrepreneurship, and the development of both met- linear regression analysis. This paper tests several hy- rics and policies consistent with it. potheses related to the relative importance of eight Despite its economic importance, the rate of en- key factors in efforts to establish an advanced entre - trepreneurship differs widely between nations around preneurial ecosystem among developing nations. the world (Freytag and Thurik 2007). A variety of Hypotheses were tested by selecting developing resource, cultural, behavioral, legal and other institu- economies of similar sizes and stages of development tional factors are believed to play important roles in from within four rapidly developing geographically the complex process by which entrepreneurs accept distinct regions, each with the availability of robust the risk of establishing a business and entering a third-party economic scoring data. The study inte- market. Scholarly studies over two decades have ex- grates the high-quality, third-party datasets into an amined entrepreneurial intent and decision making analytical framework that can help scholars develop at the individual level. (Vullo, Morando, and Platania more detailed theoretical constructs to explain the 2017). Even micro factors, such as individual resources impact of institutional factors and on entrepreneurial (Bhagavatula et al. 2010) and entrepreneurial cogni- behavior and policy makers allocate resources and tion (Lim, Trimi, and Lee 2010; Mitchell and Shepherd set priorities. For each nation and region this study 2010) have been examined and shown to have an im- asks three questions: how well does the nation/re- portant influence on individual perceptions of entre - gion score against an established global performance preneurial opportunities within a given environment. index (established by the 4 largest of the G7 econo- This paper builds upon the literature by examining mies)? And how does it compare to its peers within how several long-term comparative institutional data- its region? Are there overlapping institutional models sets from reputable international sources might be and strengths within each region that nearby nations used to assess the level of entrepreneurial readiness can draw on to build a more effective institutional of developing national economies relative to a bench- framework to support entrepreneurship? mark readiness level computed from the four largest The paper is structured as follow. The preceding national economies among the G7 nations. These introduction describes the intent and purpose of the national economies (referred to herein as G4) are the paper. This is followed by: Literature Review – setting U.S., Japan, Germany, and Great Britain. In particular, the scholarly context of the study and defines the this paper seeks to complement the work that has NERFs that are used in it; Theoretical Framework – dis- been on individual entrepreneurial readiness factors cussing each NERFs place in the literature and ration- by assessing a series of national entrepreneurial readi- ale for inclusion; Hypothesis and Methodology – the ness factors (NERFs). Specifically, it examines a series hypotheses being tested, the methods used to test of eight institutional-level NERFs that correspond them; Results – tabular and graphical comparisons generally to the four readiness dimensions defined summarizing the tests and illustrating regional simi- by the literature and identified above. (Stenholm, Ács, larities and differences; Discussion – discussing the and Weubker 2013; Urban and Muzamhindo 2017) importance of the rule of law readiness factors and This study builds upon a previous work examining next step opportunities for regional improvement; the same 8 NERFs in the narrower contexts of South and Conclusions and Future Research - assessing po- East Europe (Potts, Affholter, and Puia 2015) and West tential implications and limitations of the study and Africa (Puia, Affholter, and Potts 2015). Other schol- potential future directions. ars, notably Dempster and Isaacs (2017), have tested a similar set of questions by a different mechanism, looking at 47 countries over 17 years evaluating Total 2. Background Literature Review Entrepreneurial Activity (TEA), economic freedom, corruption and human capital. This study is the first Entrepreneurship scholars have begun to identify attempt to systematically organize and assess the and prioritize the critical institutional factors that im- relative importance of the eight selected NERFs in pact entrepreneurial readiness within geographical the early stages of national and regional economic or national contexts. Studies by Autio and Ács (2010) SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 83 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS and Bowen and De Clerq (2008) provided empirical institutions are most likely to explain the differences in evidence that new businesses are influenced by coun- entrepreneurial activities. A number of recent studies try-level institutions (e.g., Autio and Ács 2010; Bowen have sought to identify key institutional factors that and De Clercq 2008). Other scholars illustrated that may be important in countries that have a national- micro-level factors like people’s resources were impor- level institutional environment (Stenholm, Ács, and tant factors (Bhagavatula et al. 2010; Davidsson and Weubker 2013; Walter and Block 2016); however, more Honig 2003). Lim, Trimi, and Lee (2010) then showed consideration of these differences is required (Schillo, that entrepreneurial cognition mediates between in- Persaud, and Jin 2016). stitutions and entrepreneurship such that it creates in- The institutional environment in any country or stitutions, changes individuals’ perceptions, and influ- economic region is complex, comprised of a number ences entrepreneurship or the opportunities available of formal institutions with a few institutions likely in an environmental setting (Terrell and Troilo 2010). being most important. Examination of the relative The Global Entrepreneurship Research Association importance of these institutional factors is seldom (2018) provides meaningful data through their Global addressed in the extant literature. Holmes et al. (2013) Entrepreneurship Monitor (GEM) reports to accom- argue that political, regulatory and economic institu- pany the scholarly literature. tions are the most important in establishing and de- As pointed out by Schillo, Persaud and Jin (2016) fining the environment in which businesses operate. and others (Raza, Muffatto, and Saeed 2019; Ács, In identifying these categories, the authors build and Autio, and Szerb 2014), however, relatively few stud- test a unique set of measures of formal institutions ies have effectively examined the specific institutional and offer suggestions for future research. Responding factors that impact entrepreneurial activity and intent to a call for closer examination of these institutional on a national scale. More recently publications show factors, Raza, Muffatto, and Saeed (2019) conducted that scholars are interested on factors impacting en- a review of >15 years of entrepreneurship literature trepreneurial activity at a national level (Pfiefer et al. to identify studies that have empirically explored the 2021; Kryeziu and Coşkun 2018) and across countries impact of these three formal institutions on entrepre- (Sugiyanto and Yolanda 2020; Siljak 2018). These and neurial behavior. In doing so, the authors identified other authors have suggested that such factors tend sixty-one studies that examined the impact of certain to modulate the rate of entrepreneurship at the na- political, regulatory, and/or economic institutions in tional level (Ács et al. 2012; Audretsch and Keilbach some form on the various types of entrepreneurship. 2008). Importantly, Schillo, Persaud, and Jin (2016) They found that no study had addressed the relation- suggest that these institutional factors serve to modu- ship between entrepreneurial behavior and political, late the conversion of individual entrepreneurial read- regulatory and economic institutions in a single study. iness (IER) into startup intent at the individual level, Moreover, the examination of multiple factors within with some factors acting more directly than others. each of these formal institutions is only rarely found Cao and Shi (2021) further suggest that these modu- in the literature. Clearly, the study of institutional fac- lating affects may operate in a fundamentally different tors examining national-level entrepreneurship is a manner in advanced verses a developing economies. field still in its early stages of development; and one Regardless of the specific theoretical lens through in which key impact factors are still being identified which one views its impact, the institutional frame- and characterized. As such, theories that explain insti- work within any country or region is comprised of a tutional impact on entrepreneurial behavior are still in complex series of formal and informal factors that their formative stages. A brief examination of some of have an influence on entrepreneurial activity and this literature is of relevance to this study. decision making. The literature places these factors in The present research responds to the call for stud- four pillars (or dimensions): the regulatory, the cog- ies that examine specific institutional factors that can nitive, the normative, and conducive environments. be assessed both prospectively and retrospectively, (Kostova 1997; Manolova, Eunni, and Manev 2008; and addressed through policy decisions as a country Busenitz, Gomez, and Spencer 2000; Stenholm, Ács, seeks to migrate through various stages of economic and Weubker 2013; Urban and Muzamhindo 2017) development; changes in which it might encour- In recent years, entrepreneurship scholars have age entrepreneurial behavior (De Clercq, Dimov, and begun to examine which factors operate at the indi- Thongpapanl 2013; Stenholm, Ács, and Weubker 2013; vidual level to influence rates of entrepreneurship, Schillo, Persaud, and Jin 2016). The present study em- especially in high-growth, knowledge-based startup ploys a set of 8 distinct measures (i.e. factors) that can categories (Thornton, Ribeiro-Soriano, and Urbano be accessed through extant datasets to assess the 2011). Ács et al. (2012) have argued that national-level impact of several formal institutions on computed 84 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS differences in national entrepreneurial readiness. development of a supportive national entrepreneur- The sum of these 8 factors is referred to herein as ial ecosystem (Potts, Affholter, and Puia 2015). These the National Entrepreneurial Readiness Value (NERV). entrepreneurial readiness factors include: Business Previous research on such relationships has tended to Freedom, Investment Freedom, Investor Protection, focus on the relationship of single institutional factors Property Rights Protection, Technological Readiness, on national entrepreneurship (e.g., Fuentelsaz, Maicas, Innovation, Freedom from Corruption, and Access and Montero 2015; Kim and Li 2014; Nyström 2008). to Risk Capital. Highly developed economies, such The present study uses published country-level as the G7 nations, tend to score highly in all eight of data to examine 8 well defined factors that fall within the factors. Less developed nations score lower. The the formal institutions described by Holmes et al. order of importance of these factors and how they (2013). Each of these factors offers either direct or influence one another over time is poorly understood. indirect support to entrepreneurial behavior within Consequently, policy makers, entrepreneurship schol- a national entrepreneurial ecosystem; thereby, con- ars, and economic development advisors lack the kind tributing to the overall entrepreneurial readiness of a of robust temporal and theoretical framework needed nation. This study takes the view that structural insti- to effectively evaluate potential priorities and actions, tutions, such as regulatory boundaries, as well as po- and determine best-uses of limited resources to im- litical and cognitive dimensions have a direct impact prove their entrepreneurial readiness. In this study on the national entrepreneurial ecosystem, whereas each of the 8 factors are each referred to as a national other dimensions, such as the education system, entrepreneurship readiness factor (NERF), or together technological awareness and general economic en- as NERFs. The sum of these 8 NERFs (each normal- vironment have an impact that is important, but less ized to a 100 pt. scale) is referred to as the National direct. One might expect a disproportionate impact Entrepreneurship Readiness Value (NERV). This study by some of these factors over others in early-stage examines the level of entrepreneurial readiness of 30 development. This study shows that 3 rule of law re- developing nations using these NERF and NERV meas- lated factors (i.e. Investor Protection, Property Rights ures. As such, it is important to consider the context Protection, and Freedom from Corruption) of the 8 of each factor within the entrepreneurship and eco- factors examined do contribute disproportionately to nomic development literature. the computed differences in total readiness (i.e. NERV ) values among a group of 30 developing economies in 4 distinct economic regions examined. 3.1. Factor 1 – Business Freedom Entrepreneurs engage strategically in risk and un- certainty. (Puia and Potts Forthcoming). One possible Business Freedom is one of the subcomponents of explanation to the importance of the three rule of law economic freedom (Miller and Kim 2013). More gener- factors examined in this paper is that they reduce the ally, Fuentelsaz, Maicas, and Montero (2018) show that amount of systematic risk to entrepreneurs, isolate high levels of economic freedom serve to catalyze business risk (or unsystematic risk), resulting in more economic exchange and facilitate efficiencies. Bryant efficient systems and greater predictable rewards to and Javalgi (2018) demonstrate that economic free- the entrepreneur. This paper sets a foundation for the dom also attracts inward foreign direct investment. examination of the mechanisms and impact of rule of Other recent evidence suggests that trade freedom law related factors. This study appears to be the first to and economic freedom have a more significant impact determine the disproportionate influence among the on the level of start-up activity in developing econo- 8 institutional (i.e. NERF) factors examined. As such, it mies than in developed economies (Roman, Rusu, and poses some important questions for both entrepre- Stoica 2018). The Business Freedom factor, within the neurship scholars and policy makers related to the as- context of economic freedom, addresses the level of sessment and advancement of national entrepreneur- freedom an entrepreneur has when launching a busi- ship ecosystems. ness, changing direction, and operating without un- necessary barriers. It is established in the literature that more successful democratic economies have significantly fewer barriers and regulations to limit 3. Theoretical Framework market entry (Djankov et al. 2002). Similar studies find Surveys of the literature identified eight promi- that the more complex the business startup process, nent factors that are measured annually by repu- the higher capital requirements and the more detri- table international organizations and offer both mental it is to cultivating entrepreneurship (Dreher prospect and retrospective insight into the state of and Gassebner 2013). Therefore, understanding the SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 85 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS number of steps and procedures required to launch investor protection score for this factor. Countries a business in a country is crucial information when are scored on a 100 point scale, with 100 being the assessing a nation’s capacity to increase its level of highest level of investment freedom. The Heritage entrepreneurship. Foundation (2019) creates its score using 25 factors Business Freedom is included among the eight that can increase or decrease a country’s score. These critical entrepreneurial readiness factors included in factors relate to the national treatment of foreign in- this paper as a factor having a direct impact on entre- vestment, foreign investment code, restrictions on preneurial readiness. This paper utilizes the Heritage land ownership, expropriation of investments with- Foundation’s (2018) business freedom score to assess out fair compensation, foreign exchange controls, this factor. In it, countries are scored on 100 point and capital controls. The Heritage Foundation takes scale using data from the World Bank’s Doing Business its data from standardized official government pub - (2019) and giving equal weight to the following ten lications for each country, Economist Intelligence factors: the number of procedures required to start Unit, U.S. Trade Representative, and United States a business, the time required to start a business, the Department of Commerce. cost required to start a business, the minimum capital required to start a business, the number of procedures required to obtain a license, the time required to ob- 3.3. Factor 3 – Investor Protection tain a license, the cost required to obtain a license, the time to close a business, the cost to close a busi- While bureaucratic hurdles can restrict investment, ness, and the recovery rate associated with closing strong investor protection attracts inward firm invest - a business. The Business Freedom factor is reported ment and leads to higher firm value. (Giofré 2014; Lan in the dataset using a 100 point scale, with 100 be- and Wang 2004). Moreover, Perotti and Volpin (2007) ing the highest level of business freedom. (Heritage found in a broad cross-section of countries and in- Foundation 2019). dustries that investor protection was more critical to market entry than the level of financial market devel- opment. Furthermore, they found entry rates and the total number of producers are positively correlated 3.2. Factor 2 – Investment Freedom with investor protection in financially dependent sec - Investment freedom examines the freedom one has tors. (Perotti and Volpin 2007). Recent literature has when making an entrepreneurial investment within examined the relationship between shareholder pro- a nation. It is known that investment freedom maxi- tection and success of financial exchanges. (Bernstein, mizes entrepreneurial opportunities, expands eco- Dev, and Lerner 2018). Even in countries with high nomic activity, and creates jobs. (Heritage Foundation levels of venture capital activity, innovation, and fi- 2018). Foreign direct investment plays an important nancial market development, shareholder protection role in economic development (Zitta and Powers was very important for exchange success. (Bernstein, 2003). The literature on the subject is well developed, Dev, and Lerner 2018). Notably, countries with bet- stretching over several decades (Dunning 1973; Porter ter shareholder protection experienced younger, 1990). More recent literature examines the effect of less profitable, but faster growing companies which Foreign Direct Investment (FDI) on a more local level raised more capital through second-tier exchanges. by documenting its potential for positive develop- (Bernstein, Dev, and Lerner 2018). Investor protection mental impact within regions, cities, and industrial helps create an environment in which entrepreneur- clusters. (Iammarino 2018). The current literature also ship can thrive and is included as an entrepreneurial explores the role that social and cultural differences readiness factor with a direct impact and national-lev- can have on FDI, as seen through the expansion ac- el entrepreneurial readiness. tivities of large multinational enterprises. (Beugelsdijk Investors experience protection primarily through et al. 2018). Motivation for FDI is also a current topic judicial effectiveness where judicial systems ensure of the literature. (Park and Choi 2014). While it is im- laws are fully respected and protect the rights of all pacted by cultural factors, it is principally a function of citizens, and providing a foundation for economic regulations and policies that either encourage or dis- growth. (Heritage Foundation 2018). The Heritage courage investment. While its impact is indirect, the Foundation (2018) scores countries based on “judicial widespread presence of investment freedom in the effectiveness”. A country score is an equal weighting of entrepreneurship and economic development litera- judicial independence, quality of the judicial process, ture establishes it as an important institutional factor. and favoritism in decisions of government officials. This paper utilizes the Heritage Foundation’s (2018) The Heritage Foundation (2019) draws on data from 86 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS the World Economic Forum and World Bank to cre- ownership protection, risk of expropriation, and qual- ate its score. This paper uses judicial effectiveness to ity of land administration. The Heritage Foundation quantify Investor Protection because it appropriately (2019) uses data from the World Economic Forum, evaluates the judicial function of protecting private World Bank, and Credendo Group. Countries are party property rights from unlawful acts by govern- scored on a scale of 100 points, with a score of 100 be- ment or other private parties. Countries are scored on ing the highest level of property rights protection. a 100 point scale, with 100 being the highest level of judicial effectiveness. 3.5. Factor 5 – Technological Readiness The development and adoption of technology plays 3.4. Factor 4 – Property Rights Protection an enormous role in entrepreneurial innovation and While the Investor Protection NERF examines how financial opportunities. Increased development and foreign direct and other investors are treated, the use of technology helps drive economic growth pro- Property Rights Protection factor examines how real viding greater innovation leverage to entrepreneurs; property and intellectual property is treated, and how thereby, creating an expanding virtuous cycle of in- property laws are made and administered within a na- novation (Ács, Autio, and Szerb 2014). Adoption and tion. Protection of property rights plays a direct and integration of technology is extremely important in crucial role in regulating entrepreneurial activity, sup- developing nations, as improvements in competitive- porting entrepreneurial activity by giving citizens con- ness and productivity can be achieved by adopting fidence to save their income and make long term plans existing technologies. (Herman 2018). As such, the with intellectual and physical property because they ability to adopt and deploy technology within a na- know it is safe from theft or expropriation. (Heritage tion is an important indicator of entrepreneurial readi- Foundation 2018). Chowdhury (2016) showed, for ex- ness at the institutional level. ample that new firm startup is positively related to Data used to measure technological readiness is property rights protection. Fuentelsaz, Maicas, and taken from World Economic Forum. (Schwab 2017). Montero (2018) further demonstrated that weak pro- The Technological Readiness factor (also referred to as tection of property rights reduced entrepreneurial Networked Readiness) measures the propensity and activity and innovation. However, Aidis, Estrin, and capability of a region (or country) to take advantage Mickiewicz (2009) suggested that property rights pro- of opportunities provided by communications and tection has a more significant impact in countries with information technology. Data for Macedonia and Ivory a lower level of development than in countries where Coast are from 2016 (Schwab) and Myanmar data is the rule of law is already high. To this end, a five-coun- from 2015 (Schwab) due to lack of the availability of try survey of small private manufacturing firms in more recent data. The raw score is based on a scale post-communist Central and Eastern European coun- of zero to seven with seven being the highest level of tries showed that weak property rights discouraged technological readiness. To convert the scores to a 100 firms from reinvesting their profits, even when other point scale, the authors divided the reported score by sources of financing (e.g. bank loans) were available. seven and multiplied it by 100. (Johnson, McMillan, and Woodruff 2002). The authors also found that entrepreneurial firms were willing to reinvest their profits in geographies where property 3.6. Factor 6 – Innovation rights were strong but not where property rights were weak. Examining Latin American countries, Salinas, Whereas technological readiness may lead to in- Ortiz, and Muffatto (2019) identified that higher lev - creased innovation, studies have shown that larger els of Property Rights Protection correlated with fewer companies outperform smaller ones in their innova- own-account workers and an increased number of tion departments; due to a strong feedback loop from business startups. The authors suggest that improved innovation to increased R&D expenditure. (Carree et property rights protection encourages individuals to al. 2002). A recent in Kosovo showed that improved advance from necessity entrepreneurship to higher innovation characteristics also improve SME growth potential entrepreneurship. in a developing economy. (Mahmutaj and Krasniqi This study utilizes the Heritage Foundation’s 2020). The innovation factor here examines how (2018) Property Rights Protection score to assess this much is spent on research and development (R&D) import NERF. The factor is an average of physical prop- across an economy. Technological progress generally erty rights, intellectual property rights, strength of drives the improvements in scale, speed, capacity and SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 87 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS productivity needed to build wealth in a developing corruption and reduced levels of entrepreneurship economy. As such, developing regions and nations and economic development (Williams et. al. 2017). must factor in their technological capacity into their Corruption introduces coercion and economic insecu- growth strategy. (Peris-Ortiz, Ferreira, and Fernandes rity to economic relations; of greatest concern is sys- 2018). Surprisingly, cultural factors can play an im- temic government corruption. Corruption, cronyism, portant role in the speed with which new forms of and nepotism may also be intertwined. (Williams and innovation are received. The examination of the re- Yang 2017). The role that systemic corruption plays in lationship of between innovation and culture is new economic development and entrepreneurship estab- to the literature. (Lounsbury et al. 2018). Openness to lishes its restraint as a key factor in national entrepre- digitalization appears to differ between nations, and neurial readiness. (Heritage Foundation 2019) also impacts the rate and process by which a develop- This paper uses the government integrity scores ing economy might rapidly advance in the presence reported by the Heritage Foundation to evaluate of serious limitations in readiness in other areas (Cao Freedom from Corruption because this score ap- and Shi 2021). While its impact is indirect, Innovation propriately captures the practices that reduce public is an important institutional factor impacting national trust and increase the cost of economic activity. The entrepreneurial readiness. Heritage Foundation (2019) derives its government The Innovation score is taken from World corruption score from six sub factors: (1) public trust in Economic Forum’s Global Competitiveness Report. politicians; (2) irregular payments and bribes; (3) trans- (Schwab 2017). It assesses the output of a country parency of government policymaking; (4) absence of based on several innovation factors discussed above. corruption; (5) perception of corruption; and (6) gov- Data for Macedonia and Ivory Coast are from 2016 and ernment and civil service transparency. The Heritage Myanmar data is from 2015 due to lack of the availabil- Foundation (2019) draws on data from the World ity of more recent data. The raw is score out of a scale Economic Forum, World Justice Project, Transparency of zero to seven with seven being the highest level of International, and TRACE International. innovation. To convert the scores to a 100 point scale, the authors divided the reported score by seven and multiplied it by 100. 3.8. Factor 8 – Access to Risk Capital While its impact is indirect the availability of early- stage investment capital is an important factor in 3.7. Factor 7 – Freedom from Corruption any regional or national entrepreneurial ecosystem While some studies suggest limited or expected low- (Spigel and Harrison 2018). In business incubators, for level corruption has minimal impact on business for- example, available capital is a factor in an incubator’s mation activities (Campbell and Cordis 2014), the vast success (Harper-Anderson and Lewis 2018). In con- majority of studies suggest that corruption serves to trast, some studies has suggest that the conventional restrain economic growth because entrepreneurs are belief that access to risk capital is required in order hesitant to invest or rely on legal amenities (Anokhin to cultivate entrepreneurship may not be true. (Kreft and Schulze 2009). This and other studies suggest its and Sobel 2005). Specifically, Kreft and Sobel’s (2005) impact is pervasive and direct. If entrepreneurs do causality tests concluded that entrepreneurial activity not have adequate resources to overcome corrup- causes increased venture funding; not the other way tion, they are vulnerable (Chowdhury 2016), and may around (Kreft and Sobel 2005). Whether increased en- choose to change locations or refrain from launching trepreneurial activity leads to availability of more ven- altogether. As such, corruption discourages potential ture capital or vice versa, few would argue the impor- stakeholders from investing in economic activities tance of risk capital in driving entrepreneurial growth. such as innovation when the payoff cannot be guaran- Whether it is a leading or lagging indicator, Access to teed (Anokhin and Schulze 2009). Reports show that risk capital remains an important factor. corruption hinders entrepreneurial activity and inno- Access to risk capital is taken from World Economic vation (Fuentelsaz, Ferreira, and Fernandes 2018). It Forum’s Global Competitiveness Report. (Schwab can also decrease rates of entrepreneurship in a com- 2017). Data for Macedonia and Ivory Coast are from munity (Lecuna and Chávez 2018). This can have a par- 2016 and Myanmar data is from 2015 due to lack of ticularly devastating impact in developing countries the availability of more recent data. Here the authors by deepening poverty and reducing development took the raw scores for financing through the local activity (Shah 2018). A recent study in Montenegro, equity market and venture capital availability. Those for example, shows the direct relationship between scores are out of a scale of zero to seven with seven 88 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS 4.2. Model and Methodology being the highest level of financing through local eq- uity markets and venture capital. To scale the scores, Table 1 shows the list of 30 study nations and 4 the authors averaged the two scores, divided the av- benchmark nations used in this study. The nations are erage raw score by seven, and multiplied quotient by grouped by region and the GDP, population and GDP 100. per capita is provided for each. As can be seen in the regions are grouped together not only by geographi- cal location and cultural nearness, but also because they have similar GDP-to-population ratios which 4. Hypotheses and Methodology makes them comparable regarding the NERFs exam- 4.1. Hypotheses ined in this report. This paper examines the significance of the eight na- Table 1. Key Economic Factors for Each Country tional entrepreneurial readiness factors (NERFs) de- in the Study scribed above. The sum of the 8 NERFs is referred to herein as the national entrepreneurial readiness value GDP Population GDP per Country (NERV). While the literature clearly supports the im- ($, billions) (millions) Capita ($) portance of these factors, their relative contributions South East European countries included in this study: is not known. It is unlikely, for example, that they con- Albania 13.0 2.90 4,496 tribute equally to the total entrepreneurial readiness Bulgaria 39.6 7.10 5,577 at all stages of development. As such, the authors Croatia 54.8 4.20 13,060 seek to test the hypothesis that the factors contribute Macedonia 11.3 2.07 5,465 disproportionately to the total entrepreneurial readi- Romania 212 19.8 10,700 Serbia 41.4 7.00 5,919 ness (i.e., NERV) of the 30 developing nations under West African countries included in this study: examination. Furthermore, the authors postulate that Benin 9.27 11.1 835.5 the Technological Readiness, Innovation and Access Ivory Coast 40.4 24.3 1,663 to Risk Capital factors correlate less with total readi- Ghana 47.3 27.6 1,715 ness in early stage economies than Freedom from Liberia 2.16 4.40 490.5 Corruption and other factors that protect the owner- Senegal 16.4 15.4 1063 ship interests of entrepreneurs. To this end, the au- Sierra Leone 3.77 6.40 589.7 thors sought to test four simple hypotheses using the South American countries included in this study: publicly available entrepreneurial readiness factor Venezuela 482 31.0 15,560 data described above. These are as follows: Colombia 309 48.7 6,349 Ecuador 103 16.5 6,246 Peru 211 31.5 6,711 Hypothesis 1: The individual national entre- Chile 277 18.2 15,220 preneurial readiness factors (NERFs) do not cor- Uruguay 56.2 3.50 16,040 relate equally with differences in total National Paraguay 29.7 6.90 4,309 Entrepreneurial Readiness Values (NERV) of the 30 Argentina 638 43.6 14,620 developing countries examined in the study. South East Asian countries included in this study: Thailand 455 69.0 6,597 Hypothesis 2a: Investor Protection, Property Myanmar 69.3 53.4 1,299 Rights and Freedom from Corruption correlate Vietnam 201 92.6 2,174 more strongly with the differences in total NERV Philippines 314 104 3,010 than the other 5 NERFs among the 30 nations Indonesia 1,016 259 3,927 Malaysia 315 31.7 9,921 studied. Cambodia 22.2 15.8 1,402 Nepal 24.2 28.9 836.4 Hypothesis 2b: Investor Protection, Property Laos 16.9 7.2 2,341 Rights and Freedom from Corruption account for Bangladesh 250 162 1,546 >75% of the variation in total NERV between the G4 Benchmark Developed Countries 30 early stage developing economies. Benchmark GDP (in US Population GDP per Country trillions) (millions) Capita Hypothesis 3: Freedom from Corruption corre- US 19.4 323 59,980 sponds most strongly with the differences in total UK 2.62 65.6 39,970 National Entrepreneurial Readiness Values (NERV) Japan 4.87 127 38,390 Germany 3.68 82.7 44,460 scores between the 30 developing nations. (Schwab 2017). SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 89 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS The authors compare countries using publicly are tabulated in the Table 2A. The data shown illus- available data and a scaled scoring system to establish trates that all 8 factors correlate positively with total a common numerical basis for comparison. Where NERV. However, the coefficients for Freedom from necessary the reported for each factor was normalized Corruption, Property Rights Protection, Investor to a 100-point scale as described below. Total NERV Protection are substantially higher than those of the scores were calculated as the sum of all 8 NERFs for other factors. Moreover, the p-values for these factors each nation. indicate a high level of significance. After compiling data, the authors completed a The data provides a meaningful test of the hy- series of statistical tests and ANOVA linear regression potheses developed in this study. Hypothesis 1 is con- to test their hypotheses and explore the effect of the firmed, in that there is a wide range of R correlation eight individual NERFs on total NERV for each nation. factors (R = 0.888, 0.796, 0.773, respectively) and sig- -10 nificance (p-values all <10 ) between the top three readiness factors and the bottom three factors (with R of 0.484, 0.465, 0.251, respectively, and p-values of 5. Results -5 >10 ). 5.1. Regression Analyses and Hypothesis 2A is also confirmed based on the Hypotheses Testing single factor regression data shown in Table 2A. Single factor correlation coefficients (R ) were com- Specifically, those NERFs associated most directly with piled for each of the entrepreneurial readiness fac- rule of law, in protecting property and investors cor- tors (i.e., NERFs) vs. the total NERV values for each of respond most strongly with the level of NERV totals the 30 nations studied. The results of these analyses across the 30 nations examined. To test Hypothesis Table 2. Single Factor and Multi-Factor Regression Analysis for Individual Readiness Factors vs Total National Entrepreneurial Values (NERV) among 30 Developing Countries A. Single Factor Regression (Single Factor vs Total National Entrepreneurial Readiness Value) Correlation Readiness Factor P value Coefficient (R ) -15 Property Rights 0.888256 7.47375 x 10 -11 Freedom from Corruption 0.795759 3.65135 x 10 -10 Investor Protection 0.773055 1.61847 x 10 -8 Technological Readiness 0.684615 1.71434 x 10 -7 Business Freedom 0.625518 1.97744 x 10 -5 Investment Freedom 0.483648 1.99120 x 10 -5 Innovation 0.465436 3.28997 x 10 -3 Access to Risk Capital 0.251087 4.79295 x 10 B. Three Factor Regression (Three Factors vs Total National Entrepreneurial Readiness Value) Correlation Selected Factors Coefficient (R ) Investor Protection Property Rights Protection 0.965324 Freedom from Corruption ANOVA Df SS MS F Significance F -19 Regression 3 55102.29436 18367.43145 241.264887 4.31457 x 10 Residual 26 1979.37306 76.12973309 Total 29 57081.66742 Coefficients Standard Error t Stat P-Value -6 Intercept 29.693677 5.331179 5.569815 7.52107 x 10 -6 Investor Protection 1.362889 0.222167 6.134530 1.74182 x 10 -6 Property Rights Protection 1.135211 0.187200 6.064156 2.08702 x 10 -3 Freedom from Corruption 0.804587 0.270010 2.978849 6.19517 x 10 90 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS 2B, the three top scoring factors were subjected to a Based on the data tabulated in Table 2B, multi-factor, ANOVA regression analysis. The R factor Hypothesis 3 is not confirmed. Whereas the authors for the analysis is 0.965, indicating that the three fac- hypothesized that Freedom from Corruption would tors together provide an enhanced correlation with be the most important institutional factor influencing the Total Entrepreneurial Readiness. The ANOVA sig- differences in national entrepreneurial readiness and -18 nificance factor is <10 , indicating an extraordinarily would, therefore, correlate most strongly with NERV high level of significance. The coefficients, p-values totals. In fact, it is the second strongest correlate of and other results of the regression analysis are listed NERV. The NERF that correlates most strongly with to- in Table 2B. These values suggest that 96.5% of the tal NERV is Property Rights Protection. variation in Total Entrepreneurial Readiness can be ac- counted for by the differences in Investor Protection (I), Property Rights Protection (P) and Freedom from 5.2. Tabular and Graphical Results Corruption (F). Based on these results, an equation can be constructed relating total Entrepreneurial Table 3 characterizes the NERFs of each region by Readiness (ER) to these three factors, as follows: comparing the mean score for each region against the G4 benchmark mean for that factor (“G4 benchmark”). ER = 29.695677 + 1.362889(I) + 1.135211(P) + 0.804587(F) A graduated tabulation was constructed for each re- gion evaluating each factor in terms of whether: (a) it (Equation 1) reached a level of at least 60% of the G4 benchmark In other words, ER represents a meaningful ap- (white background), (b) fell between 50% and 60% of proximation of the total NERV for an individual coun- the G4 benchmark (horizontal lined background) the re- try, yet only requires assessment of the three NERFs gional average for that factor or (c) was <50% of the G4 listed. benchmark (vertical and horizontal lined background). Table 3. Primary and Secondary Opportunities for Regional Improvement in 8 National Entrepreneurial Readiness Factors National Entrepreneurial South East G4 Benchmark West Africa South America South East Asia Readiness Factor Europe Average Direct Factors Business Freedom 68 56 63 61 85 Freedom from Corruption 40 41 38 32 76 Investor Protection 48 39 39 38 80 Property Rights Protection 59 38 47 45 85 Indirect Factors Technological Readiness 65 45 58 50 88 Innovation 45 43 43 47 78 Investment Freedom 71 67 61 43 81 Access to Capital 39 42 42 50 71 Average National Entrepreneurial Readiness 435 371 391 366 644 Value (NERV ) – of region Key: White = >60% of G4 Benchmark average Horizontal Lined Background: 50.1-59.9% of G4 Benchmark average Horizontal and Vertical Lined Background: <50% of G4 Benchmark average SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 91 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS Of the 18 lined rectangles, 11 (61%) of them fall Table 4 is the regression analysis for “Rule of Law” in the Investor Protection, Property Rights Protection National Entrepreneurial Readiness Factors vs Total and Freedom from Corruption categories. Moreover, National Entrepreneurial Readiness Value among 30 all the horizontal and vertically lined rectangles fall Developing Countries. The results of these 30 coun- into these categories of entrepreneurial readiness. tries are shown individually on Figures 1-5. On Figures Clearly, these are areas where substantial improve- 1-5, spider graphs illustrate the differences in the ment is needed. Other than these categories, the only entrepreneurial readiness factor averages among the other NERF with 3 lined rectangles is Innovation. It is four regions examined in the study. In each of these interesting to consider whether this may, in fact, be figures, the solid black outer line represents the aspi- a lagging (or following) indicator of entrepreneurial rational horizon, established herein as the G4 bench- readiness whereas the other factors are leading (pre- mark (and represents the mean of the scores of the requisite factors). What seems clear from this is that U.S., Japan, U.K. and Germany). the NERFs relating to the rule of law seem to be the areas where there is the greatest opportunity for improvement. Table 4. Regression Analysis for “Rule of Law” National Entrepreneurial Readiness Factors vs Total National Entrepreneurial Readiness Value among 30 Developing Countries Regression Statistics Multiple R 0.982508951 R Square 0.965323840 Adjusted R Square 0.961322744 Standard Error 8.725235417 Observations 30 ANOVA   Df SS MS F Significance F Regression 3 55102.29436 18367.43145 241.264887 4.31457E-19 Residual 26 1979.37306 76.12973309 Total 29 57081.66742         Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 29.69367705 5.331178748 5.569814567 7.52107E-06 18.73528219 40.65207191 18.73528219 40.65207191 Investor Protection 1.362888844 0.222166797 6.134529843 1.74182E-06 0.906218453 1.819559235 0.906218453 1.819559235 Property Rights Protection 1.135210724 0.187200124 6.064155822 2.08702E-06 0.750415357 1.52000609 0.750415357 1.52000609 Freedom from Corruption 0.804586895 0.270099894 2.978849357 0.006195175 0.249388612 1.359785178 0.249388612 1.359785178 92 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS Figure 1. Regional Entrepreneurial Factor Averages Compared to G4 Average Figure 1. Regional Entrepreneurial Factor Averages Compared to G4 Average G4 Average Balkan Average W. Africa Average S. America Average SE Asia Average Business Freedom Access to Risk Capital Investment Freedom Freedom from Corruption Investor Protection Innovation Property Rights Protection Technological Readiness Figure 2. Entrepreneurial Factors in West Africa vs. G4 Average Figure 2. Entrepreneurial Factors in West Africa vs. G4 Average Benin Ivory Coast Ghana Liberia Senegal Sierra Leone G4 Average Business Freedom Access to Risk Capital Investment Freedom Freedom from Corruption Investor Protection Innovation Property Rights Protection Technological Readiness SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 93 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS Figure 3. Entrepreneurial Factors in South East Europe vs. G4 Average Figure 3. Entrepreneurial Factors in South East Europe vs. G4 Average Albania Bulgaria Croatia Macedonia Romania Serbia G4 Average Business Freedom Access to Risk Capital Investment Freedom Freedom from Corruption 0 Investor Protection Innovation Property Rights Protection Technological Readiness Figure 4. Entrepreneurial Factors in South American vs. G4 Average Figure 4. Entrepreneurial Factors in South American vs. G4 Average Venezuela Colombia Ecuador Peru Chile Uruguay Paraguay Argentina G4 Average Business Freedom Access to Risk Capital Investment Freedom Freedom from Corruption Investor Protection Innovation Property Rights Protection Technological Readiness 94 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS Figure 5. Entrepreneurial Factors in South East Asia vs. G4 Average Figure 5. Entrepreneurial Factors in South East Asia vs. G4 Average Thailand Myanmar Vietnam Philippines Indonesia Malaysia Cambodia Nepal Laos Bangladesh G4 Average Business Freedom Access to Risk Capital Investment Freedom Freedom from Corruption 0 Investor Protection Innovation Property Rights Protection Technological Readiness 6. Discusion the business decisions made by entrepreneurs. The contribution of each factor to the NERV of 6.1. Importance of Rule of Law Readiness these early stage economies is captured in equation Factors 1. While the equation is useful in characterizing the Based on the linear regression analyses referenced readiness of the thirty countries in the four regions above, it appears that the Investor Protection, Property examined, it would be reasonable to expect that it Rights Protection, and Freedom from Corruption would apply to developing countries in other regions NERFs are not only the three most impactful ones, as well. Testing that expectation with other regions they are also thematically related. These factors deal and future datasets will be important in establishing with fairness and justice within institutional systems the general applicability of this relationship. and their human administration. Each is identified as As shown in Figure 1, the SE European Countries a direct impact factor in this study, falling under the clearly standout among the four developing regions. regulatory and economic dimensions described by The region ranks highest in five NERFs, including Holmes et al. (2013) and the regulative dimension of the three identified in this paper as correlating most Schillo, Persaud, and Jin (2016). strongly with NERV totals across the 30 developing Based on the individual regression scores for economies. In contrast, the group of ten developing these factors, the rule of law factors (i.e. Investor SE Asian nations standout clearly in terms of provid- Protection, Property Rights Protection, and Freedom ing better Access to Risk Capital, while scoring poorly from Corruption) appear to account for well over 90% in terms of Investment Freedom and Freedom from of the variation in total NERV between the 30 nations Corruption. Indeed, all four regions score poorly examined in this study. This result is also consistent (<60% of the average of the G4 benchmark average) with a recognition of the strategic decisions regarding in terms of Freedom from Corruption (rule of law) and risk and uncertainty made by entrepreneurs (Puia and Innovation. The greatest diversity of scores among Potts Forthcoming) and how the rule of law may re- the regional average scores occurs in the category of duce systematic risk to thereby incentivize and reward Technological Readiness. In terms of regional strong SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 95 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS points, S. America scores well in Business Freedom, 60% threshold in Technological Readiness, while the Investment Freedom and Technological Readiness, remaining 2 score only modestly lower, achieving the trailing the SE Europe only slightly in these catego- 50-60% threshold. ries. West Africa excels in the category of Investment In contrast, the regions display a greater diver- Freedom. Yet it lags the other regions in terms sity and potential deficiency in terms of the Property of Property Rights Protection and Technological Rights Protection, Innovation and Freedom from Readiness. Corruption factors. While it is reasonable to assume These observations suggest that each of the de- that Technological Readiness is a precursor to devel- veloping nations and regions exhibits strengths and oping a culture of innovation, it is clearly insufficient weaknesses in terms of formal institutional factors to enable such innovation on its own. It likely requires impacting entrepreneurship. As one examines each concerted action around many of the entrepreneurial region in more detail, considerable diversity and nu- readiness factors discussed here. Even among the ance can be seen. One question that arises from this G4 developed economies, Innovation appears to lag study is whether cooperation between neighbors in Technological Readiness by a substantial margin. It a proximate region might be a low risk-high impact seems reasonable that the top 5 factors (Business route by which scholars, entrepreneurs, policy makers Freedom, Investment Freedom, Investor Protection, and investors within a region might draw on region- Technological Readiness and Property Rights ally extant knowledge to rapidly improve entrepre- Protection) may work together to facilitate an envi- neurial readiness among neighboring economies. ronment that brings forth sustained innovation, and improved access to capital, while progressively push- ing out the kind of corruption (i.e., the bottom three factors) that would hinder the capacity of entrepre- 6.2. Next-Step Opportunities for Regional neurial entities to scale-up, create value, and reinvest Improvement that value to support further scaling and innovation. Based on the analysis shown in Table 3, it is clear that Whether through this mechanism or others, it seems each region has a number of categories (white back- reasonable that the factors work in concert to create ground) in which their entrepreneurial readiness is entrepreneurial readiness. The interrelationships be- within 60% of the average of the aspirational bench- tween them deserve further study. mark represented by the average of the G4 developed While visually mapping these regional distinctions economies. Interestingly, all 4 regions exceed that is one objective of the report, another is to assess the threshold in terms of the Business Freedom marker diversity of entrepreneurial readiness in nearby states and all but one (SE Asia) reaches the 60% mark in within each of 4 developing regions. Two questions of Investment freedom. Similarly, all but one (SE Europe) interest in this study were: (1) Which NERFs are likely reaches the 60% threshold in Access to Capital. to be most important to future entrepreneurial pro- Granted, Sub-Saharan Africa and South America reach gress within these regions and countries? (2) Is there exactly that threshold, but do not exceed it. SE Europe enough diversity and depth within each region to reaches the 50-60% threshold (horizontal lined back- provide a basis for regional cooperation and knowl- ground) for this marker. What these observations sug- edge-sharing? If so, it may be possible for scholars, gest is that neither Access to Risk Capital, Business advocates and policy makers within these regions to Freedom, nor Investment Freedom are likely to be facilitate rapid sharing and adoption of best practices sources of major deficiency in entrepreneurial readi- in such a way as to catalyze improvement in entrepre- ness among the sub-regions examined. As discussed neurial readiness and an increase in economic growth above, there is some variation among them, but there and entrepreneurship in each region. appears to be a reasonable level of resource already The results of this study demonstrate consider- present in each region. In other words, it would ap- able heterogeneity in entrepreneurial readiness pear that some level of investable capital is available, (NERV) scores both within and between four diverse and there is a reasonable level of freedom in place to geographical regions. While culture clearly plays a pursue that investment capital (Business Freedom) role in many of these, it is unlikely that all the factors and deploy it (Investment Freedom). are equally influenced by cultural attributes. In other In terms of Technological Readiness, there also words, some are more cultural or subjective, while appears to be considerable resources available in others are more objective. For example, Technological all four of the regions studied. In particular, 2 of the Readiness is seen as talent focused and education 4 regions (SE Europe and South America) reach the related. It may be improved by shifting educational 96 SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, VOLUME 16 (2) 2021 ENTREPRENEURSHIP FACTORS AMONG DEVELOPED COUNTRIES AND EMERGING REGIONS 7. Conclusions and Future Research priorities and other resources. Innovation activity is also seen as a derivative of investment in talent, tech- nology and tertiary education. Like the study of entrepreneurship itself, the tools Other entrepreneurial readiness factors are more required to study progress of nations toward estab- complex and, perhaps, difficult to address due to cul- lishing a robust entrepreneurial ecosystem are a work tural factors. A lack of Business Freedom may reflect a in progress. This study suggests identifies eight impor - burdensome set of laws or it may reflect the comfort tant factors that contribute national entrepreneurial that a given society takes in minimizing risk and con- readiness, and that three of these factors account for trolling outcomes. In effect, the establishment of high most of the differences in National Entrepreneurial barrier, bureaucratic and regulatory processes may Readiness Values that are observable among the 30 be a means to providing reassurance, and a cultural countries examined in this study. Whether this is gen- means to minimize risk. However, it also translates into eralizable to all similar groups of developing econo- a series of statutory and enforcement mechanisms mies is unclear, and worthy of further study. And that may be modified and adjusted according to eco - while the study employs a broad range of robust, non- nomic and societal requirements. These mechanisms overlapping readiness factors, there is no guarantee may be altered without addressing the cultural factors that another set of factors would not better represent that led to those barriers. the similarities and differences between the 30 coun- A similar mixture of culture, statutory and en- tries examined here. Furthermore, the heterogene- forcement factors may also impact the development ous nature of the regions examined, both within and of Investment Freedom, Investor Protection and between them, may create a sample bias that is not Freedom from Corruption. In contrast, nations scor- accounted for within the scope of analysis and discus- ing high in Property Rights in this study are those that sion provided above. maintain a functional, fair and effective judiciary and Other research may examine how best to use ju- use it to secure and defend ownership rights within a dicial monitoring, media and public awareness efforts nation. This parameter is strongly tied to judicial effec - to reinforce property rights, diminish corruption and tiveness and consistency in applying the law within a extend investor protection at a regional or national culture. Cultural attributes, however, do factor heavily level. A further body of research would focus on the in establishing Freedom from Corruption within a na- development of best methods for communicating tion. The positive influence of consistent law enforce - and transferring entrepreneurial support structures ment and judicial processes, however, are modulated and knowledge within or between economic regions. by the degree of cultural acceptance of marketplace For example, South East Europe, scoring highest corruption. The results of this study suggest there may among the developing regions in this study, might be be a variety of interactions among the 8 readiness well suited to communicate lessons learned and best factors, such as those that link intellectual property practices to countries in other developing regions. rights with innovation. (Kale and Rath 2018) and those The study of national entrepreneurial readiness demonstrating that dynamic capabilities are integral factors among thirty developing nations provides in- to firm competitiveness and performance (Monteiro, sight into the policy development of robust entrepre- Soares, and Rua 2019). neurial economies at the national and regional levels. Consistent with the findings of Kreft and Sobel The work suggests clear opportunities for policy mak- (2005), the findings in this report suggest that Access ers to facilitate synergistic entrepreneurial “cross-train- to Risk Capital may be a following indicator, rather ing” between nations within all four regions examined. than a leading indicator, of entrepreneurial activity. In More work is needed to understand the best methods other words, investable capital becomes increasingly and practices for establishing beneficial cooperation available as entrepreneurial activity (and successes) in these regions to improve entrepreneurial readiness increase within a culture or a region. and success. 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Journal

South East European Journal of Economics and Businessde Gruyter

Published: Dec 1, 2021

Keywords: entrepreneurship; emerging markets; developing countries; developed countries; O57

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