The Influence of Country-Level Governance on Business Environment and Entrepreneurship: a Global Perspective

Abstract

The main purpose of this study is to analyze the influence of country-level governance on business environment and entrepreneurship for an international large sample of countries for a period of six years (2007-2012). The dimensions of country-level governance at macroeconomic level will be captured by using the following six indicators developed by the World Bank: 1. Voice and accountability; 2. Political stability and absence of violence; 3. Government effectiveness; 4. Regulatory quality; 5. Rule of law; 6. Control of corruption. To capture the quality of business environment we use the Ease of doing business index developed by the World Bank in its Doing Business report series. To measure entrepreneurship we use the World Bank Group Entrepreneurship Survey where the number of new registered businesses, as a percentage of the working age population is defined as a measure of formal entrepreneurship. In order to capture the extent to which country-level governance does influence business environment and entrepreneurship, we analyze the data using cross-sectional time-series random effects generalized least square (GLS) models. The results of this panel data analysis clarifies and quantifies the influence that various characteristics of country-level governance could have on business environment and entrepreneurship. Therefore, this study could have significant implications for policy-makers as well as for businesses.