Foreign Direct Investment, Institutional Quality, Economic Freedom and Entrepreneurship in Emerging Markets

Hernan Herrera Echeverry (hherrer2@eafit.edu.co), Jerry Haar (haarj@fiu.edu) and Juan Benavides Estévez-Bretón§ (jbenavid@uniandes.edu.co)
Authors registered in the RePEc Author Service: Hernan Herrera-Echeverri (hherrer2@eafit.edu.co)

No 11809, Documentos de Trabajo de Valor Público from Universidad EAFIT

Abstract: This study investigates the relationship between foreign direct investment, institutional quality, economic freedom, and entrepreneurship in emerging markets. The research compares the capacity and appetite for business creation among high-income, low-income and emerging countries. The results are based on a panel study of data, from 2004 to 2009 for 87 countries, using as its source “The World Bank Entrepreneurship Snapshots” to look at the connection between business creation, institutional quality, market freedom and foreign direct investment (FDI). The findings reveal a strong positive relationship between institutional quality and business generation in all three of the above categories. Meanwhile, institutional quality and how this develops remains significant to business creation at least two years after a business is incubated, underscoring its importance as a contributory factor for creating an environment conducive to entrepreneurship. The freedom to create businesses and invest has a marked impact on business generation in emerging countries, while the influence of international trade appears more important as a spur to the genesis of business in low-income countries. Results also show that regulation of the free market has a short-term effect on business creation. Finally, there is a direct and significant relationship between FDI and business development in emerging countries. The effect of FDI is also felt for at least two years after the foreign investment. This result is consistent with “the spillover theory of entrepreneurship” (Acs et al, 2009; Gorg and Strobl, 2002; Ayyagari et al, 2010).

Keywords: Foreign Direct Investment; Institutional Quality; Economic Freedom; Entrepreneurship (search for similar items in EconPapers)
JEL-codes: G18 (search for similar items in EconPapers)
Pages: 65
Date: 2013-05-01
New Economics Papers: this item is included in nep-ent and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Foreign direct investment, institutional quality, economic freedom and entrepreneurship in emerging markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000122:011809

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