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This chapter examines the role of institutions in National Systems of Entrepreneurship. Research shows that individuals respond to their contexts when deciding between alternative courses of action, such as when choosing between salaried employment and entrepreneurship (Bowen and De Clercq, 2008). Put differently, institutional structures and incentives regulate the allocation of effort into entrepreneurship, and this effort may result in productive, unproductive, or even destructive forms of entrepreneurial action. Depending on context, the same individual may either create a high-impact entrepreneurial venture, enter the informal (grey) sector or do nothing at all. This interaction between individuals and their contexts underscores the need for a systemic approach to understanding National Systems of Entrepreneurship. In this chapter we explore how institutions and incentives regulate entrepreneurial effort. Following this introduction we provide a framework of National Systems of Entrepreneurship. We next present the Global Entrepreneurship and Development Index (GEDI) as a way to think about how to evaluate such a system and discuss the role of institutions in providing an incentive system for entrepreneurship. This we do keeping in mind that entrepreneurs seek to maximize their own self-interest, and it is the task of the policymaker to make sure that this action aligns with national economic interest. We next discuss formal and informal institutions followed by a pulling together of incentives, institutions and entrepreneurship. Finally, we identify what we consider key institutions and bring this back to the GEDI showing that institutions are indeed more important than individual behavior. A conclusion follows.
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