Does the Quality of Public Policies and Institutions Matter for Entrepreneurial Activity? Evidences from the European Union’s Member States

Abstract

By using data related to the 15 European Union “old” and “new” Member States, for a time span between 2001 and 2014, the present paper supports the thesis of a positive and significant correlation between the quality of governance and entrepreneurial activity. In order to test such correlation, the elements of Governance Quality reported by the World Bank’s Worldwide Governance Indicators (WGI) project were considered. Some key aspects of entrepreneurial activity reflected by Total Early-Stage Entrepreneurial Activity, Perceived Opportunities and Perceived Capabilities were taken into account based on The Global Entrepreneurship Monitor (GEM) database. In addition, in order to reflect the structural rigidities and tensions from the labour market, the unemployment rate provided by the World Bank’s World Development Indicators database was considered as a control variable. The effect of the inclusion of a country in a certain development group, according to the most recent World Bank classification (“low-income economies” to “high-income economies”), was also considered in a multi-level analytical framework with a two-level model. The results of this study clearly indicate that higher levels of public policies and institutions’ credibility/effectiveness produce a positive and robust impact on entrepreneurial climate.

Key words: Governance, Entrepreneurial activity, Worldwide governance indicators, Generalized method of moments.
JEL: L26, O43.