Institutions and entrepreneurial activity: a comparative analysis of Kosovo and other economies

This paper investigates institutional quality and its impact on entrepreneurship activities in a less-developed economy. The unifying characteristic of government policies in less-developed contexts is that, often, the primary focus of policy makers is not entrepreneurs and, especially, not the impact of these intuitions on entrepreneurs. This paper aims to show that this impact can be considerable. The author investigates political and macroeconomic institutions and regulations, human capital and skills development and access to finance.

This paper investigates institutions that have major impact on entrepreneurship activities in a less-developed economy. The data used for the analysis is focused on Kosovan entrepreneurship, but the findings are presented in the wider context of economies. The aim of the investigation in this study is to identify whether certain regulations and institutions in different countries affect the level of entrepreneurship activity. In addition, the purpose is to identify similarities and differences among entrepreneurship patterns in diverse economic and institutional settings and to capture this diversity within a common framework. Most of institutions that are subject of analysis belong to one of the following dimensions: political, legal and regulatory institutions, educational institutions geared towards entrepreneurship and the quality of the financial system (e.g. cost of and access to finance). What the empirical results in this paper show is that the impact of such institutions on entrepreneurship can be considerable. The more conducive and qualitative the country’s institutional conditions are, the higher the likely levels of entrepreneurship and vice versa.

The results of the investigation suggest that compared to the reference countries, entrepreneurship in Kosovo is subject to numerous constraints. However, they suggest, also, that the most binding of these are related to institutional quality, followed by the cost of finance and human capital limitations.

There are few studies in the entrepreneurship literature that use data at the country level, a level that provides a considerable level of precision on the quest to understand what propels and constraints entrepreneurial activity. Given the scarcity of studies at the country level, this study aims to contribute in three ways. First, it aims to advance our discussion of how institutions can rightfully support business creation and retention in a less-developed economy. Second contribution is empirical. Entrepreneurship research rarely incorporates the analysis of several cohorts of firm entrants and exits from a developing and relatively young economy, which, so far, has received little research attention. Third, this analysis contributes to the development of a comparative methodology to measure entrepreneurship activities from an international perspective. The findings obtained for a less-developed economy are compared to data for four benchmark countries, to measure entrepreneurship at the national level.