The Relationship between Formal and Informal Institutions and Entrepreneurship Rates across European Regions

Abstract

Researchers and policymakers have been interested in promoting entrepreneurship in Europe because of its positive implications for employment, productivity, and economic growth. We use Hayton, George, and Zahra's (2002) Model of Culture's Association with Entrepreneurship to consider the implications of economic conditions, informal institutions (culture), and formal institutions for regional entrepreneurship rates. Measuring regional entrepreneurship as self-employment rates, our multilevel analysis shows a significant negative relationship between country-level labor market regulations (strictness) and entrepreneurship rates, a negative relationship between Individualism (vs. Collectivism) and entrepreneurship rates, and a negative relationship between regional unemployment and entrepreneurship rates across 186 European regions in 20 countries. We discuss implications for theory, linking formal and informal institutions and economic conditions with entrepreneurship, and for regional policy, particularly in Europe.