INSTITUTIONS, CULTURE, AND ENTREPRENEURSHIP: DIRECT, TOTAL, AND COMPLIANCE BURDEN EFFECTS

Abstract

Empirical research on the effects of culture on national entrepreneurship rates has been inconclusive, leading to contradicting theories to explain these mixed results. Results have also been sensitive to which covariates are in the empirical analysis. Given that culture might affect entrepreneurship directly and indirectly through institutions, we model the Direct and Total Effects of culture on entrepreneurship accounting for possible endogeneity effects. We use recent innovations in econometrics that are robust to model selection errors to estimate the direct and Total Effects of culture on entrepreneurship across countries. Using GLOBE’s nine dimensions of culture on an expanded sample size, we find that Future Orientation, Gender Egalitarianism, Assertiveness, and Institutional Collectivism have robust positive Total Effects on national entrepreneurship. In contrast, Uncertainty Avoidance has a robust negative Total Effect on entrepreneurship. We also find that the Total Effect is greater than the Direct Effect for Assertiveness, Institutional Collectivism, and Uncertainty Avoidance and smaller than the Total Effect for the remaining—Performance Orientation, Future Orientation, Humane Orientation, In-Group Collectivism, Gender Egalitarianism, Power Distance. This suggests strong institutions that serve as a catalyst that engenders entrepreneurship in high Assertiveness, high Institutional, and high Uncertainty Avoidance cultures. Conversely, in high-Performance Orientation, Future Orientation, Humane Orientation, In-Group Collectivism, Gender Egalitarianism, and Power Distance countries, strong institutions can sometimes impose significant compliance burdens that dampen the natural cultural proclivity that supports institutions and entrepreneurship.