Edited by Robert F. Salvino Jr., Michael T. Tasto and Gregory M. Randolph
Chapter 4: Measures of entrepreneurship and institutions: a more formal robustness check
After years of empirical research several “stylized facts” (Kaldor, 1961) have emerged from the entrepreneurship research literature. Entrepreneurship is a vital ingredient of economic development, both internationally and intra-nationally. The type and amount of entrepreneurial activity depends on a society’s “institutions” – the legal, political, and social rules of the game. The “rules” of a classical liberal society promote pro-development entrepreneurship more than the “rules” of other types of social organization (Sobel, 2008). In order to measure the degree to which a society conforms to the classical liberal ideal, a literature has developed around the so-called economic freedom indices (Gwartney and Lawson, 2003; Karabegovic et al., 2003). However, the literature uses different measures of entrepreneurship, different measures of institutions, different models, and different estimators. On the one hand, these “facts” are a robustness check. Unless there was something “real” to these facts, it seems very unlikely to have such similar findings across such dissimilar empirical approaches. This is one type of robustness check, which we’ll refer to as “informal robustness check.” There are more formal types of robustness checks, too. One would be to conduct meta-analysis on the relationship between institutions and entrepreneurial activity, such as Doucouliagos and Ulubasoglu (2006) performed on the more general contention that more economic freedom increases a society’s wealth. Unfortunately, although there are numerous studies relating economic freedom to entrepreneurial activity, there are not enough studies to conduct a meta-analysis.
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