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Shadow economy and entrepreneurial entry

Estrin, Saul ORCID: 0000-0002-3447-8593 and Mickiewicz, Tomasz (2012) Shadow economy and entrepreneurial entry. Review of Development Economics, 16 (4). pp. 559-578. ISSN 1363-6669

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The impact of the shadow economy on entrepreneurial entry across countries is analyzed utilising 1998-2005 individual-level Global Entrepreneurship Monitor data and national macro-economic variables. A simple correlation coefficient suggests a positive relationship between the size of the shadow economy and the likelihood of entrepreneurial entry. However, this masks more complex relationships, if, as argued, the shadow economy is an embedded social phenomenon. With appropriate controls and instrumenting for potential endogeneity, the impact of the shadow economy on entry in a linear specification is found to be negative. Further, there is evidence of a U-shaped relationship: entrepreneurial entry is least likely when the shadow economy amounts to about a quarter of gross domestic product (GDP). At the individual level, an extensive shadow economy has a more negative impact on respondents who are risk averse. In addition, in the economies where property rights are stronger, the negative impact of the shadow economy is weaker.

Item Type: Article
Official URL:
Additional Information: © 2012 Blackwell Publishing
Divisions: Management
Subjects: H Social Sciences > HB Economic Theory
JEL classification: O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements: Legal, Social, Economic, and Political
Date Deposited: 05 Nov 2012 11:56
Last Modified: 28 May 2024 05:54

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