Exports Create Good Entrepreneurship?

In today’s largely market driven world, entrepreneurs represent primary agents of change, instating and operating the processes that create or extract value within institutional frameworks. But we must differentiate. Export-Oriented Entrepreneurship (EOE) relates positively with GDP per Capita (income) because it is largely opportunity driven, whereas Total Entrepreneurial Activity (TEA, globally mainly necessity-driven) relates negatively. The Varieties of Capitalism (VoC) perspective illustrates that the external mediating variables of institutions and culture explain this divergence (Terjesen, 2009). Firstly, new ventures require resource advantages. For instance, vocational education endows entrepreneurs with positive information asymmetry and access to labor. Secondly, flexible industrial relations incentivize employee-initiated value-added. Thirdly, non-confrontational labor-employer relations raise the quality of ideas reaching management. Fourthly, stabilizing institutions like property rights enable entrepreneurs to take advantage of the above opportunities (de Soto, 2001). Finally, the above relations are endogenous; Exports grow foreign exchange reserves, develop industry, and raise employment which reinforce the “five institutional spheres” (Terjesen, 2009). Thus, the positive relation of EOE and income appears because exports build and simultaneously require institutions and opportunities. In contrast, TEA is negatively related to income, as less developed countries tend to have high necessity-driven (informal, institutional-void-filling, e.g., subsistence farming) entrepreneurship. As incomes rise, shares of necessity-driven entrepreneurship fall, institutional voids close, markets strengthen and labor agglomerates into larger, formalized organizations lowering TEA (Terjesen, 2009).

The empirics support this notion to an extent. A baseline TEA against income regression (table 1) yields a negative significant relationship. However, adding institutional- and market-controls removes the significance. One explanation is that the GCI only measures de-jure not de-facto institutions (Kose, 2009). Informality (most TEA) should be unaffected by the mere existence of laws without enforcement. Additionally, subdomains could act in opposite directions, cancel out, and deliver aggregate insignificant coefficients. Market Size could positively affect TEA, and Labor Market Reforms negatively, but both compose the Markets GCI subdomain (WEF, 2018). Issues of collinearity (e.g., Market Size and Population) may also affect significance. When adding cultural dimensions to the model, Income becomes insignificant and only Innovation Ecosystems, Power-Distance, Individualism, and Uncertainty Avoidance have explanatory power on TEA. These are leading cultural forces driving efficiency and institutional development, thus lowering informality and necessity-driven TEA (Konings, 2021). In the full EOE model, population relates negatively, as big domestic markets mean low export dependence (Martin, 2008). VoC is partially confirmed, as Market Quality positively and significantly effects EOE.

One potential reason for the loss of explanatory power moving from the GCI to GCI+Culture model is the interrelation of culture and institutions (hard to disentangle). In the Stead Model, individual factors shape collective values. Augmented by philosophies, they set groundworks for religion and form a strong cultural background for societal constructs (Suen, 2007). Organi-zational factors and external forces (institutions) are then only a final filter. Culture is dynamic, permeates institutions and should thus dominate the effect on entrepreneurship (Konings, 2021).

To test this empirically, reveal collinearity, and remove opposing effects, the model requires more observations and separation of GCI domains. Alternatively HCI, WCGI or II can measure institutional spheres. State capacity and information asymmetry variables should also be added.  

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