Explaining Cross-National Variations in Entrepreneurship: The Role of Social Protection and Political Culture

Among academics and policy-makers, there is increasing recognition of the importance of a successful entrepreneurial sector to the promotion of wealth creation and economic prosperity.1 However, there remains considerable debate over the question of what kind of economic environment provides the best conditions for entrepreneurial activity. In the literature on entrepreneurship, a long line of work dating back to the seminal contribution of Knight (1921) emphasises the role of entrepreneurs as risk takers, who seek out new opportunities and develop new products and processes in an environment of uncertainty. Under this view, the agents in an economy who are drawn into entrepreneurship are those with the least aversion to risk (see Kihlstrom and Laffont 1979, for example). However, formal theoretical models generate ambiguous predictions concerning the effects of an increase in risk on the rate of entrepreneurship in an economy. A priori, therefore it is unclear whether mechanisms designed to reduce the degree of risk faced by individuals in an economy will tend to promote or discourage the level of entrepreneurship.