Environmental factors and new firm creation: An institutional approach

Given the relevant role that entrepreneurship plays in the economic and social development of countries and regions, further progress regarding its determinants is needed. The aim of this study is to analyze the influence that environmental factors have on creating new firms, using institutional economics as a theoretical framework. A panel data model with information from the Global Entrepreneurship Monitor (GEM) is used to prove statistically that institutions like political stability and role models are related to creating enterprises. The main findings indicate that in medium and low income countries, informal factors (political stability and role models) have a greater impact on entrepreneurship, while in high income countries, the formal factors (procedures for starting businesses and training in management and administration) are more determinant. These findings also have several practical implications for policy makers in terms of designing governmental initiatives to promote entrepreneurship.