Entrepreneurship and Political Risk

Previous literature has clearly demonstrated the need for sound government policies or ‘institutions’ to promote and support entrepreneurship in a country. This paper explores the role of one such institution – political stability – in boosting entrepreneurial endeavors. A politically stable nation will have lower risk and transaction/contracting costs, and higher levels of government transparency, predictability, and accountability. Thus we should expect that with greater political stability there should be a greater degree of entrepreneurial activity. Using dynamic panel estimators (System GMM estimators) and considering multiple proxies of political risk, our results confirm this hypothesis – greater political stability with a country does indeed lead to an increased rate of entrepreneurship and wealth creation