THE EFFECT OF THE SHADOW ECONOMY AND ECONOMIC FREEDOM ON ENTREPRENEURSHIP: AN EMPIRICAL STUDY IN ASIAN COUNTRIES

Buu Kiem Dang () and Khoi Dinh Nguyen ()
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Buu Kiem Dang: Faculty of Finance and Accounting, Saigon University, 273 An Duong Vuong Street, Ward 3, District 5, Ho Chi Minh City, Vietnam
Khoi Dinh Nguyen: Entreprenuership Department, FPT University-Can Tho Campus, 600 Nguyen Van Cu Street, An Binh Ward, Ninh Kieu District, Can Tho City, Vietnam

Journal of Developmental Entrepreneurship (JDE), 2024, vol. 29, issue 03, 1-31

Abstract: This study examines the effect of the shadow economy, economic freedom and other macroeconomic factors on formal entrepreneurship in Asian countries. The dataset encompasses 28 countries over the period from 1995 to 2018. The Fixed Effect Model (FEM) and Generalized Least Squares (GLS) methodologies are employed for regression analysis. The results indicate a nonlinear relationship between the shadow economy and formal entrepreneurship. Economic freedom, particularly trade freedom, significantly enhances entrepreneurship. Positive macroeconomic influences on formal entrepreneurship include financial development, political stability, GDP per capita growth and foreign direct investment net inflows, while government spending and unemployment negatively affect entrepreneurship. The findings suggest that a substantial shadow economy does not inherently impede formal entrepreneurship. Consequently, governments should prudently consider the role of the shadow economy in fostering entrepreneurial growth. Moreover, policies aimed at improving economic freedom, especially trade freedom, can create a conducive environment for boosting formal entrepreneurship.

Keywords: Shadow economy; economic freedom; entrepreneurship; Asian countries (search for similar items in EconPapers)
JEL-codes: D2 E02 L26 M13 O17 O50 P14 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S1084946724500171

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