The literature has unambiguously agreed on the indispensable role of entrepreneurship in economic growth and the development of countries. In a similar context, cross country studies on the determinants of entrepreneurship have suggested multiple factors like GDP growth or GDP per capita, population growth, population density, labor force participation rates, and quality of institutions and governance to be important factors affecting entrepreneurship. Most studies focus on the entrepreneurial success rate proxied by the number of new firms standardized by population of the region or the country. What affects ‘fear or failure’ or the perception among people that, in spite of opportunities, business may not succeed, and, thus, the entrepreneurship failure rate might be high? Are there political factors like the lack of institutional constraints that might enhance uncertainty in business decisions? Are there economic factors like a lack of economic freedom or high business regulations? Or, are there cultural factors like amount of trust among people? We aim to explore these questions by considering the ‘fear of failure’ variables from the Global Entrepreneurship Monitor (GEM). Further, we aim to explore interactive impacts among these variables and, thus, explore how such interactive impacts affect ‘fear of failure’ rates.
We aim to employ measures of checks and balances and political instability (proxying for political variables), focus on economic freedom variables and business regulations (capturing economic variables) and employ trust (measuring culture). The various channels via which entrepreneurship failure can be affected are that of poor governance, lack of constraints, greater uncertainty, hampering the process of creative destruction and greater transactions costs due to less trust. Thus, all of these can affect ‘fear of failure’. The various political, economic and cultural variables will come from the Polity IV database, the Database of Political Institutions, the BANKS database, the Fraser Institute Database, Doing Business’ World Bank database and the World Value Survey.
We aim to employ fixed effects and dynamic panel estimators for our analysis. In terms of identification strategies, we will resort to lagged variables and instruments generated by the dynamic panel estimators via moment generating conditions. In terms of sample size, we will draw on developed and developing countries over the period 2000 to 2015. We expect that lower checks, fewer constraints on the powers of the executive, higher business regulations, less economic freedom and lower trust should enhance ‘fear of failure’.
