Institutional Shocks Transmission and Impact on Entrepreneurship Development in Developing Economies
Abstract:
Entrepreneurship constitutes a major pathway through
which developing economies pursue economic expansion and social transformation.
This study investigates how institutional disturbances are transmitted across
economies and how such disturbances influence self-employment and
entrepreneurship development. Panel data drawn from twenty developing countries
covering the period 1996–2022 are analysed using a Panel Vector Autoregression
(PVAR) framework. The Generalized Forecast Error Variance Decomposition
(GFEVD)and Impulse Response Functions (IRFs) are employed to trace the dynamic
effects of institutional shocks on entrepreneurial outcomes. Self-employment is adopted as a proxy for entrepreneurship, alongside
entrepreneurial finance, regulatory quality, government expenditure, education,
and control of corruption. The findings indicate that institutional shocks
generate heterogeneous short-run and long-run effects on entrepreneurship, with
access to finance emerging as the most influential external driver over time. The
results further suggest that entrepreneurial outcomes in emerging economies are
affected not only by market forces but also by the stability and effectiveness
of institutional arrangements. These findings underline the importance of
institutional reforms that strengthen governance structures and reduce
uncertainty in order to promote sustainable entrepreneurship.
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