Regulation is one of the more important influences on entrepreneurship around the world, and modern scholars have explored what the see as key conceptual and empirical relationships between regulation and entrepreneurship.
Like the country and industry characteristics so much under analysis by the academic community as they relate to enterprise creation, characteristics of the entrepreneur him or herself also influence the association between regulation and entrepreneurial activity.
Just a handful of entrepreneurs often transform society when it comes to innovation. Free will belongs there somewhere, something reflected in the different behaviors among siblings (even twins) raised in the same home environment and the chicken-or-egg question of whether an entrepreneur is “born or made” (see the work of the Kirzner Entrepreneurship Center).
A firm’s early years depend on momentum and speed and the “energy, focus and flexibility of their leaders” as described in Where the Jobs Are: Entrepreneurship and the Soul of the American Economy by John Dearie and Courtney Geduldig. As scholars Steven W. Bradley and Peter Klein have noted “[t]here are “many available aggregate measures of entrepreneurship, such as the number of start-ups and the percentage of the population that is self-employed, but these do not necessarily capture abstract concepts of alertness, judgment, and innovation.”
Who finally takes the entrepreneurial leap on the international stage and what influences them?
Noting the already then-“burgeoning” nature of the literature on the “influence of regulation of product and labor markets on GDP growth, TFP [total factor productivity], investment, and employment using macro data,” Silvia Ardagna and Annamaria Lusardi took advantage of the earlier days of the Global Entrepreneurship Monitor (GEM) micro dataset to study “how a country’s regulatory and legal environment affect individuals’ decisions to engage in new entrepreneurial activity.” They looked at “regulation of entry, regulation of contract enforcement, and regulation of labor” noting that regulation can have both public-interest and public choice motivations.” Their research finds that “individual characteristics, such as gender, age, and status in the workforce are important determinants of entrepreneurship,” and that “social networks, self-assessed skills, and attitudes toward risk,” along with regulation, play roles:
“Consistent with the public choice model, we find that regulation acts as a detriment to entrepreneurship, particularly for those individuals who become entrepreneurs to pursue a business opportunity. In our empirical analysis, we estimate the effect of regulation via its impact on individual characteristics. Regulation has the greatest impact on the effects of social network, business skills, attitudes toward risk, and working status. Specifically, regulation attenuates the effect of social networks, business skills, and working status on entrepreneurship while it strengthens the impact of attitudes toward risk. We find also that several individual characteristics—gender, age, and education—are important determinants of entrepreneurship, though their effects differ across types of entrepreneurship. For example, the estimates of education are positive and statistically significant for individuals who become entrepreneurs to pursue a business opportunity, while they are negative and statistically significant for those whose entrepreneurial activity is simply remedial. This finding further highlights the importance of being able to distinguish between types of entrepreneurs.” (p. 4)
Related work by Ardagna and Lusardi strongly indicates that remedial entrepreneurship—that engaged in when no other options exist—is “accentuated” for the disadvantaged by entry regulation. For example, “women are more likely to enter into entrepreneurship in countries with higher levels of entry regulation, but mainly because they cannot find better work,” something pronounced in “less financially developed” countries.
Appropriately, avenues for future research on gender and others aspects can and will continue to be explored as datasets like GEM expand and improve in usefulness.
The lessons for policymakers go beyond just the obvious observation by scholars that more regulation can mean less entrepreneurship. The characteristics of the citizenry as groups, families and individuals also play a role in responses to public policy changes, and these distinctions are likely to increasingly play a part in academic research and policy formulation.
Compilations like the Global Entrepreneurship Monitor and the World Bank’s Doing Businesssurvey of conditions in various nations will continue to be explored by scholars of entrepreneurship and policymakers. Over time this can lead to better understanding of the influence of the state on individuals’ willingness to take entrepreneurial risks.