ENTREPRENEURIAL DYNAMICS AND HIGHER EDUCATION INSTITUTIONS: EVIDENCE FROM THE POST-COMMUNIST WORLD

Drawing on the institutional and regional entrepreneurship literature this study develops a conceptual framework to analyse the impact of higher education institutions on entrepreneurial dynamics across 98 cities of the Commonwealth of Independent States (CIS) during 1995-2008. Entrepreneurial dynamism has been argued to be particularly vital for transition economies. With the collapse of communism, which was characterised by the suppression of private initiative, transition economies have undergone a colossal change involving comprehensive institutional reforms as they moved towards a market economy. The institutional reform of higher education institutions, whose role has been largely overlooked so far in transition economies, can be regarded as playing a prominent role in driving entrepreneurial dynamics in the region. Through undergoing an institutional change, higher education institutions have emerged to counterbalance the Soviet legacies to the benefit of entrepreneurship development in the region. To investigate the effect of higher education institutions on entrepreneurial dynamics in the region empirically we utilize a unique dataset that contains urban audit indicators across various domains specific to our study, and merge it with institutional country-level data. We employ the System Generalised Method of Moments technique to address a number of econometric problems, including the problem of potential endogeneity of some of our regressors. Extending upon Stenholm?s (2013) multi-pillar institutional concept, we show that higher education institutions may influence entrepreneurial dynamics through various channels such as (1) the human capital development; (2) shaping a system of societal values and norms which cultivate a positive attitude towards entrepreneurship; (3) affecting individuals? perceptions about knowledge and skills necessary to start up a business; and (4) knowledge spillovers. These correspond to Stenholm?s et al. (2013) four pillars of institutions: (1) regulative; (2) normative; (3) cognitive and (4) conducive. Formally placed within the regulative environment and mandated by national laws on education, higher education institutions have become increasingly sustained by other pillars that, taken jointly, are shown to accelerate entrepreneurial dynamics in the region. In addition, our results provide evidence on the importance of some other domains of regulatory environment for entrepreneurial dynamics in the region. More specifically, we show that greater government activism, associated with a higher ability of governmental officials to transfer wealth through various corruptive practices, reduces growth in stock of small businesses, whereas progress in banking reform and secure property rights enhance it.