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Editorial

Entrepreneurship Growth in Emerging Economies: New Insights and Approaches

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ABSTRACT

Emerging economies have a diverse range of countries regarding both geography and stage of development that have been influenced by historical, cultural, and societal change. Recently more emphasis has been placed on understanding the role of entrepreneurship in emerging economies due to changing economic conditions and the rapid rise of entrepreneurs in the global economy. This special journal issue includes a number of articles on diverse issues related to entrepreneurship in emerging economies both from the micro, meso, and macro perspectives. Based on this, we argue that it is necessary to consider the institutional context of formal and informal institutions to understand better the continued growth of entrepreneurship in emerging economies. In addition to summarizing the main contributions of those articles in this Issue, we provide new insights and approaches to explore further how entrepreneurship can contribute to sustainable economic growth in this context. This will help contribute to the literature and practice about the development of entrepreneurial activity in emerging economies.

1. Introduction

There has been a substantial rise in the scholarly research on emerging economies during the past decade due to increased interest in entrepreneurship in different societal contexts (Al Sahaf and Al Tahoo Citation2021; Ghura et al. Citation2020; Harraf et al. Citation2021; Hoskisson et al. Citation2011; Ratten Citation2020; among others). In this regard, Kiss et al. (Citation2012, 266) stated that:

“The largest of these [emerging] economies (i.e., China, India, Russia, Brazil, Mexico, South Korea, Turkey, Indonesia, and Poland) now comprise over a third of the world’s 25 largest economies and are growing at around three times the pace of the advanced ones”.

The rise in the population in emerging economies requires new economic policy initiatives to foster sustainable economic growth (Acs, Autio, and Szerb Citation2014a). In this respect, entrepreneurship is needed in emerging economies as a way to develop the economy, alleviate poverty and increase living standards (Abraham Mensah and Ibrahim Citation2020; Acs, Szerb, and Autio Citation2014b; Aminova, Mareef, and Machado Citation2020; Bruton, Sutter, and Lenz Citation2021). Therefore, the rationale for this special journal issue comes from an interest in better understanding the unique nature of entrepreneurship in emerging economies.

In this context, there has been a surge in interest by researchers, policymakers, and practitioners on emerging economies as a fascinating context to study (Bruton, Sutter, and Lenz Citation2021). This is because little is known about entrepreneurship dynamics in emerging economies: “economies that are increasingly moving to market orientation and seeking to rapidly advance economically” (Bruton, Ahlstrom, and Obloj Citation2008, 1). Several studies suggested that emerging economies are different from developed economies in that they lack well-developed institutions, often resulting in lower entrepreneurial activity (Ahlstrom, Bruton, and Yeh Citation2008; Bruton, Ahlstrom, and Obloj Citation2008; Bruton, Ahlstrom, and Puky Citation2009). However, some emerging economies, such as Estonia, Slovenia, and Slovakia, have managed to close this gap and appear in the top 30 of the Global Entrepreneurship Index (Acs, Szerb, and Autio Citation2014b). Thus, shedding light on the varying degree to which emerging countries have achieved entrepreneurial development, this special journal issue brings to light the heterogeneity of the entrepreneurial processes in emerging economies by focusing on different issues facing the small enterprise sector.

In addition, there has been more awareness surrounding the social and cultural conditions encouraging entrepreneurial levels in emerging economies. On the surface, governments in emerging economies pass laws and regulations similar to those seen in developed economies. Nevertheless, these commercial laws conducive to entrepreneurship are not implemented efficiently (Aidis, Estrin, and Mickiewicz Citation2008; Kassim and El Ukosh Citation2020; Smallbone, Welter, and Ateljevic Citation2014; Tonoyan et al. Citation2010). In this realm, De Clercq, Danis, and Dakhli (Citation2010) suggested that emerging economies that adopt rules and regulations from developed countries to accelerate entrepreneurial activity may not find them helpful without understanding the power of informal institutions such as local cultures and traditions (Sarwar Uddin et al. Citation2020).

Based on the previous discussion, recent studies showed that informal institutions have more influence on entrepreneurship than formal ones such as rules and regulations (Aparicio, Urbano, and Audretsch Citation2016; Urbano and Alvarez Citation2014). These informal institutions such as cultural values (Fernández-Serrano and Romero Citation2014; Hayton and Cacciotti Citation2013); social networks (De Clercq, Danis, and Dakhli Citation2010; Estrin, Korosteleva, and Mickiewicz Citation2013; Stenholm, Acs, and Wuebker Citation2013), media attention (Aparicio, Urbano, and Stenholm Citation2021b; Stenholm, Acs, and Wuebker Citation2013), social recognition (Castaño, Méndez, and Galindo Citation2015; Castaño-Martínez, Méndez-Picazo, and Galindo-Martín Citation2015; Stenholm, Acs, and Wuebker Citation2013; Urbano and Alvarez Citation2014; Alnoaimi and Mazzuchi Citation2021), and role models (Álvarez and Urbano Citation2011), and their impact on entrepreneurship have seen considerable attention in the literature.

Taken together, emerging economies are an interesting context to study entrepreneurship for a number of reasons. First, entrepreneurs who start new businesses play a crucial role in emerging economies as they operate as engines of structural change and economic growth (Aparicio, Urbano, and Audretsch Citation2016; De Clercq, Danis, and Dakhli Citation2010; Naudé Citation2010). However, entrepreneurs in emerging economies face different institutional challenges when starting their new ventures. These institutional obstacles are derived from immature or an absence of institutional infrastructures, which can discourage aspiring entrepreneurs from exploiting new opportunities in the market (Aidis, Estrin, and Mickiewicz Citation2008; Alazemi and Al Omari Citation2020; Layla and Mordi Citation2021a, Citation2021b; Smallbone, Welter, and Ateljevic Citation2014; Tonoyan et al. Citation2010).

Second, emerging economies share common legacies concerning their shared histories of absent or immature institutions and centralized economic control (De Clercq, Danis, and Dakhli Citation2010; Tonoyan et al. Citation2010). Therefore, differences in the pace and extent of institutional development and economic liberalization can offer a valuable context for a comprehensive theoretical understanding of the role of institutions (formal and informal) on entrepreneurship and whether an improved institutional environment has helped these countries increase their level of entrepreneurial activity (Ghura et al. Citation2020). Thus, such economies offer a natural laboratory to study the evolution of institutions that can create a hospitable environment for the development of entrepreneurial activity (Harraf et al. Citation2021; Ratten Citation2020)

Finally, emerging economies have various characterizations regarding cultural values, religions, social norms, and using different currencies (Bruton, Sutter, and Lenz Citation2021; Ghura Citation2019). Consequently, the results of this Special Issue should consider this heterogeneity among emerging economies, and the recommended entrepreneurship policies should be treated at the country level.

Apart from introducing the Special Issue, the following section reviews the role entrepreneurship and institutions play in economic growth in emerging economies. Section 3 summarizes the main contributions of those papers in this Special Issue. Finally, section 4 offers some issues and perspectives on future research avenues.

2. The Importance of Entrepreneurship, Institutions and Economic Growth

The intersection of the fields of entrepreneurship and economic growth is a challenging and potentially rewarding area for researchers, policymakers, development agencies, and entrepreneurs (Naudé Citation2011; Ramaano Citation2021). However, only a few scholars in economics (e.g., Leibenstein Citation1968; Schumpeter Citation1942) have been able to draw on any systematic research into the role of entrepreneurship in economic growth. While economic growth does not emerge automatically, entrepreneurs are needed as the agents of creative destruction who create new value to the market, which then circulates throughout the economy (Awad, Al-Jerashi, and Alabaddi Citation2021; Schumpeter Citation1942).

Building on the previous discussion, there has been renewed interest in the role of entrepreneurship in economic growth (Acs, Autio, and Szerb Citation2014a, Citation2014b; Aparicio, Turro, and Noguera Citation2020; among others). In this respect, Naudé (Citation2011, 3) stated that this:

“Interest was reignited by the improved availability of relevant cross-country data, by the resurgence of entrepreneurship after the fall of communism and the gradual reforms initiated by China since the late 1970s, by the emerging recognition of the role of institutions in both fields, and by the increasing emphasis on private sector development by donors and international development agencies”.

In this regard, the concept of entrepreneurship has been widely recognized as a means of “growing the pie” by increasing economic activity to create more jobs and generate more income for more people, instead of simply redistributing the wealth from one group to another (Acs, Desai, and Hessels Citation2008; Acs, Szerb, and Autio Citation2016; Baumol, Litan, and Schramm Citation2007). However, the literature on entrepreneurship lacks clarity regarding how entrepreneurship is accurately correlated with human wellbeing and global prosperity (Acs, Szerb, and Autio Citation2016).

The seminal work of Douglass North (Citation1990, Citation2005) and Baumol (Citation1990) remains crucial to our understanding of the central role institutions play in entrepreneurship development and economic growth. In this perspective, entrepreneurs can contribute effectively to an economy’s welfare and prosperity based on the institutions that prevail in a particular society (Baumol Citation1990; Baumol and Strom Citation2007; Sobel Citation2008). This is because institutions are the “rules of the game in a society” that encourage or constraint the “productive” entrepreneurial activities towards economic growth and prosperity (Baumol Citation1990; North Citation1990). Moreover, North (Citation1990) suggested that these positive and negative incentives come mainly from formal (e.g., rules and regulations) and informal institutions (e.g.., culture and social norms). In particular, formal institutions exist to decrease the transactions costs caused by laws, while informal institutions intend to reduce the uncertainties involved in human interaction (North Citation1990, Citation2005). Both formal and informal institutions interact at different levels, producing outcomes that have significant implications for increasing “productive” entrepreneurial activity (Aparicio, Turro, and Noguera Citation2020; Baumol Citation1990; North Citation1990). Therefore, the institutional theory could be useful for understanding which institutional variables encourage entrepreneurial activity that contributes to economic growth in emerging economies (Bjørnskov and Foss Citation2013; Bruton, Ahlstrom, and Li Citation2010; Sisaye Citation2021; Veciana and Urbano Citation2008; Hasan and Hassan Citation2021).

In the context of emerging economies, few countries such as Estonia, Slovenia, and the Czech Republic, have experienced an extraordinary transformation regarding economic growth, institutional development, and knowledge creation (Al kurdi Citation2021; Al-Nsour and Khliefat Citation2020; De Clercq, Danis, and Dakhli Citation2010; Hoskisson et al. Citation2000). At the same time, countries such as the Kyrgyz Republic, Ghana, and Georgia have been less successful in improving economic development compared to other emerging economies (Schwab and Sala-i-Martín Citation2014). Therefore, there is a need to understand the effects of institutional factors on entrepreneurial activity in the context of emerging economies. In particular, there is an emerging interest in how emerging economies at the factor and the efficiency-driven stage could increase exports and develop more value-added industries to diversify their economies and reach the innovation-driven stage (i.e., a knowledge-based economy).

To this end, entrepreneurship matters for emerging economies in which entrepreneurs can allocate resources more efficiently than governments, and that market is necessary to respond to these changes through consistent adjustments to “separate actions of different people” and “the conditions of supply of various factors of production” (Acs and Amorós Citation2008, 310). Furthermore, many countries have recognized the importance of the markets where entrepreneurs operate by improving their institutional environment, private sector development, and small and medium enterprise policies (Derbali Citation2021; Fesokh and Haddad Citation2019; Ghura Citation2019). Therefore, it is necessary for emerging economies that need to move into the innovation-driven stage to develop favorable environmental conditions to increase “productive” entrepreneurship and consequently contribute to economic growth and development (Al-Hawaj Citation2021).

3. Overview of the Articles in the Special Issue

Six articles were included in this special issue that covered various topics related to entrepreneurship and institutions in emerging economies. First, Al-Qudah et al. (Citation2021) attempted to determine the nature of the relationship between sustainable development, social entrepreneurship, innovations, and institutions. The authors used the structural equation model and bidirectional causality model to estimate these relationships in 15 countries of the Regional Comprehensive Economic Partnership (RCEP), representing nearly a third of the world’s population and account for 29% of the global gross domestic product. The study found that there is a positive relationship between social entrepreneurship, innovation, and sustainable development. However, institutions have an indirect positive effect on innovation.

In another timely relative topic, Najaf et al. (Citation2021) attempted to investigate the impact of the Covid-19 pandemic on the determinants of Fintech Peer to Peer (P2P) lending. Many entrepreneurial businesses and activities were severely affected by the ongoing pandemic. During the pandemic, banks and financial institutions offered online loan application services. However, few have developed verification of loan applications submitted online in the key determinants of P2P lending, such as loan amount, interest rate, loan duration, and the number of unverified loans. The results showed that FinTech P2P lending has become the most viable alternative credit option available to borrowers. This study highlights the usefulness of P2P lending platforms and their potential to augment or replace lending provided by traditional banking institutions.

From an entrepreneurship growth nexus, Lama Radwan and Daoud (Citation2021) examined the influence of Total Early-stage Entrepreneurial Activity (TEA) on the growth of output per worker. This study used a multiple regression model on panel data of a sample drawn from 64 countries (2002–2015). Endogeneity was handled using valid instruments, and the informal economy was deployed as a moderator of the entrepreneurial growth nexus. The study found that the effect of entrepreneurship on growth varies by level of development and that the size of the informal economy is of no consequence to the entrepreneurship growth relationship.

Nasrallah and El Khoury (Citation2021) and Khamis and Ismail (Citation2021) focused respectively on corporate governance and social responsibility in Small and Medium Enterprises (SMEs) in two Arab countries: Lebanon and Egypt. El Khoury, Nasrallah, and Alareeni (Citation2021) empirically examined the link between corporate governance and the financial performance of SMEs in Lebanon. Using data from a sample of 150 non-listed companies, the study applied 2SLS and quantile regression to control the endogeneity found in such relationships. The results showed that effective corporate governance results in increased financial performance and better performing companies tend to improve their corporate governance score (Jamile and Diab Citation2021). Interestingly, the findings presented that this relationship depends on the level of SMEs financial performance in Lebanon.

On the other hand, Khamis and Ismail (Citation2021) explores Corporate Image (CI) for companies as one of the primary measures of competitive advantage. The study focused on SMEs found in the construction industry in Egypt. Regression analysis was performed to assess Corporate Social Responsibility (CSR) effect on Corporate Image. The results revealed that Egyptian SMEs in the construction industry implemented most CSR practices included in ISO 26000, and those practices positively impact Corporate Image (CI).

The study of Al Hawaj and Buallay (Citation2021) investigates the worldwide impact of sustainability reporting on firms’ performance across seven different sectors. Using data culled from 3,000 firms in 80 different countries for ten years from 2008 to 2017. The findings elicited from the empirical results demonstrate that there are differences in the impact of sustainability reporting (ESG) on firm's operational performance (ROA), financial performance (ROE) and market performance (TQ) between the seven sectors. offers a summary of these contributions.

Table 1. Summary of the studies in this Special Issue.

4. Concluding Remarks and Future Research

The previous discussion highlighted the importance of entrepreneurship and institutions to economic growth in emerging economies. This Special Issue has collected views from several international authors to understand better how entrepreneurship differs in emerging economies. As a result, the research papers vary in terms of emerging economies that are considered in this Special Issue. However, each paper complements the other as they are all focused on entrepreneurship in emerging economies.

Incorporating insights from entrepreneurship literature with a broader literature from economics, the relationship between institutions and entrepreneurship has seen the emergence of several key research themes for entrepreneurship scholars. In this respect, Urbano, Aparicio, and Audretsch (Citation2019) suggested that entrepreneurship could be the missing link between the relationship between institutions and economic growth, and therefore future research should focus on what institutional variables are conducive to entrepreneurship, which in turn contributes to economic growth and development. Therefore, our investigation mainly relates to the theoretical and empirical research gaps that deal with institutional factors and their impact on the development of entrepreneurial activity in emerging economies and discuss how these gaps could be filled.

Our literature review reveals that there are several gaps in the understanding of the mechanisms that link institutions to entrepreneurship. Although institutions have been widely recognized as explaining the differences in entrepreneurial activity across countries (e.g., Acs, Autio, and Szerb Citation2014a, b), what remains unclear is how different institutions (i.e., formal and informal) play an essential role in encouraging entrepreneurial activities at different stages of economic development (Ahlstrom and Ding Citation2014; Al-Hawajreh Citation2020; Alhammad Citation2020; Bruton, Ahlstrom, and Obloj Citation2008; Carlsson et al. Citation2013; Smallbone, Welter, and Ateljevic Citation2014).

The research in the field of entrepreneurship to date has tended to focus on formal rather than informal institutions (Carlos Díaz Casero et al. Citation2013; Castaño-Martínez, Méndez-Picazo, and Galindo-Martín Citation2015; Fuentelsaz et al. Citation2015; Gholami and Al Tahoo Citation2021; Sahiti Citation2021). In this respect, North (Citation1990, 53) stated:

“Looking only at the formal rules themselves, therefore, gives us an inadequate and frequently misleading notion about the relationship between formal constraints and performance”.

Therefore, despite the importance of the constant interaction between formal and informal institutions, there remains a paucity of evidence on such interaction effects that could be relevant to the theoretical discussion (Ghura, Li, and Harraf Citation2017; North Citation1990). In particular, there is an urgent need for an analysis of the effect of informal institutions that can impact (direct and indirectly) both formal institutions and the rates of entrepreneurial activity (Aparicio, Urbano, and Stenholm Citation2021b; Ghura et al. Citation2020).

Concerning the empirical challenges, few studies have examined the impact of institutional variables on entrepreneurial activity using cross-national data (De Clercq, Danis, and Dakhli Citation2010; Stenholm, Acs, and Wuebker Citation2013). In this regard, Bruton, Ahlstrom, and Li (Citation2010) argued that research consisting of multiple-country databases is the exception, not the rule, when employing institutional theory to analyze the variation rates of entrepreneurial activity (Urbano and Alvarez Citation2014). However, this cross-national analysis may not offer a clear picture of the evolution of institutional quality through a specific period (North Citation1990). Therefore, future studies would have been more useful if they had focused on longitudinal data for a group of countries (Ghura et al. Citation2020; Urbano, Aparicio, and Audretsch Citation2019).

In addition to focusing on longitudinal studies, Bjørnskov and Foss (Citation2016) suggested that there are several shortcomings related partly to the theoretical challenges and empirical issues. One of these issues is concerned with how to identify and document causality. Several studies claimed that there is a bidirectional relationship between entrepreneurship and institutions, where entrepreneurship may not just be endogenous to institutions, but institutions may also be endogenous to entrepreneurship (Belitski, Chowdhury, and Desai Citation2016; Bjørnskov and Foss Citation2016; Elali Citation2021; Urbano, Aparicio, and Audretsch Citation2019). Also, given the fact that all studies risk suffering from omitted variable bias, which requires careful robustness analysis, most studies in the field of entrepreneurship have failed to include potentially influential factors and empirical alternatives (Bjørnskov and Foss Citation2016).

Furthermore, previous studies have not explicitly dealt with the heterogeneity problem as they assume that the impact of institutional variables on entrepreneurship is approximately homogeneous across developed and developing countries. This critical assumption can be misleading to policymakers as it can create substantial measurement errors in cases where the actual effects of institutions are heterogeneous (Bjørnskov and Foss Citation2016). Because the conceptual model that consists of the interaction effect of formal and informal institutions on the development of entrepreneurial activity may lead to statistically biased results, Urbano, Aparicio, and Audretsch (Citation2019) suggested, therefore, that it is worth considering the impact of the institutional variables (formal and informal) on entrepreneurial activity simultaneously.

In the context of emerging economies, future research should focus on how policymakers and institutions can improve the well-being of entrepreneurs (Smallbone, Welter, and Ateljevic Citation2014) and consider other types of high growth entrepreneurship, such as export-oriented entrepreneurship and corporate entrepreneurship (Aparicio, Turro, and Noguera Citation2020; Aparicio, Audretsch, and Urbano Citation2021a). In contrast, Bruton, Sutter, and Lenz (Citation2021) suggested that promoting technology-based entrepreneurship will typically benefit the elites in the formal sector. Therefore, future research should focus on exploring the impact of different institutions in shaping the entrepreneurial actions of the formal and informal sectors to reduce economic inequality in emerging economies (Bruton, Sutter, and Lenz Citation2021).

In the same vein, there is a need to explore the influence of different institutions (e.g., formal and informal) from the macro-level (policy and regulation) to micro-level (individual characteristics and attitude) in the success of entrepreneurs and entrepreneurship in emerging economies (Ahlstrom and Ding Citation2014; Aparicio, Turro, and Noguera Citation2020; Aparicio, Urbano, and Stenholm Citation2021b).

The evidence reviewed here suggests a relevant role for the institutional dynamics in promoting a higher quality of entrepreneurship in emerging economies. Thus, new insights could tackle the fact that the interplay between formal and informal institutions on the development of entrepreneurial activity may advance research in entrepreneurship and institutional fields. In this sense, there is a need to understand better how institutions improve the decisions of policymakers, companies, and entrepreneurs before, during, and after entrepreneurial and strategic processes, which might occur in turbulent times (Aparicio, Turro, and Noguera Citation2020). This is evident in the case of the COVID-19 pandemic, which poses many challenges to governments and entrepreneurs (Kuckertz et al. Citation2020). Moreover, there is mainly underexamined research on refugee entrepreneurship in emerging economies such as Lebanon, Jordan, and Turkey that could lead to fruitful directions to explore in more detail the experiences of refugee entrepreneurs, the socioeconomic and institutional conditions they operate in, and how these variables line up with migrants at large (Desai, Naudé, and Stel Citation2021).

We hope that our Special Issue will encourage further research into the relationship between entrepreneurship, institutions, and economic growth in the context of emerging economies.

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