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Formal versus informal entrepreneurship in emerging economies: The roles of governance and the financial sector

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  • Omri, Anis

Abstract

This study contributes to the existing entrepreneurship literature by demonstrating how formal and informal entrepreneurship in emerging economies are differentially driven by the interplay between financial development and good governance. The following findings are obtained through the two-step system Generalized Method of Moments: (i) there exists an unconditional positive (negative) impact of financial development on formal (informal) entrepreneurship; (ii) the conditional effect of quality of governance increases formal entrepreneurship and decreases informal entrepreneurship; (iii) the net effects on formal entrepreneurship from the interactions of financial development with the indicators of governance quality are mostly positive, indicating that the quality of governance can be employed to enhance the positive weak effect of financial development on formal entrepreneurship; and (iv) the net effects on informal entrepreneurship from the interactions between financial development and the indicators of governance quality are negative for most estimated models, indicating that good governance can be used as a policy variable that improves the potentially weak impact of financial development on reducing informal entrepreneurship. Theoretical and empirical contributions, policy and practical implications are also discussed.

Suggested Citation

  • Omri, Anis, 2020. "Formal versus informal entrepreneurship in emerging economies: The roles of governance and the financial sector," Journal of Business Research, Elsevier, vol. 108(C), pages 277-290.
    • Handle: RePEc:eee:jbrese:v:108:y:2020:i:c:p:277-290
    DOI: 10.1016/j.jbusres.2019.11.027
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