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2022

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06

Local Government and Opportunity Entrepreneurship in Underdeveloped Institutional Environments: An Entrepreneurial Ecosystem Perspective


Full text words: 5975, recommended reading time: 15 minutes

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原文来源:Yi fan Wei, Regional governments and opportunity entrepreneurship in underdeveloped institutional environments: An entrepreneurial ecosystem perspective[J]. Research Policy, 2022

Original address: https://doi.org/10.1016/j.respol. 2021.104380

Photo Source: https://www.baidu.com/

/Summary/

The role of local governments in promoting opportunistic entrepreneurship has received increasing attention from academics and practitioners. This study draws on research on the entrepreneurial ecosystem (EE) to provide a more specific analysis and comprehensive explanation of the supporting role of local governments in an underdeveloped institutional environment and their interaction with other key elements of the local entrepreneurial ecosystem. This paper suggests that in an underdeveloped institutional environment, a local government that is able to perform its core function of providing public and social services is positively related to the growth of opportunity entrepreneurship. This effect becomes stronger in regions with higher levels of marketization, higher education institutions (HEIs), entrepreneurial literacy, and social entrepreneurship. Empirical results based on Chinese provincial entrepreneurship data from 1993 to 2013 provide strong support for these hypotheses. This study contributes to the literature on entrepreneurial ecosystems through more systematic evidence from underdeveloped institutional settings and has policy implications for the promotion of opportunistic entrepreneurship.

1. Introduction

As more and more countries and international organizations begin to realize the importance of local government in driving innovation and economic prosperity, academia and practitioners are paying more and more attention to the role of local government in nurturing opportunity entrepreneurship. The entrepreneurship ecosystem approach provides a holistic and structural perspective for looking at opportunity entrepreneurship and argues that local governments play a supportive role, working with other interconnected elements of the ecosystem to promote self-sustaining opportunity entrepreneurship activities.

To date, empirical research on the role of local governments in local entrepreneurial ecosystems has mostly been conducted in developed institutional settings, where local governments are considered to be able to perform their core functions to support entrepreneurs. However, this assumption may not apply to an underdeveloped institutional environment. Therefore, the experience of how local governments support local economic entities in a developed institutional environment cannot be easily applied to an underdeveloped institutional environment. This key distinction between the two institutional environments has received limited attention in the literature, and the role of local government in an underdeveloped institutional environment remains unclear.

To address this gap, this paper draws on recent research in the entrepreneurial ecosystem approach, which theorize the role of local government in local entrepreneurial ecosystems and provide a more analytical and comprehensive explanation of the supporting role of local government in local entrepreneurial ecosystems in an underdeveloped institutional environment. This paper argues that in an underdeveloped institutional environment, local governments are the sole providers of public and social services essential to entrepreneurs. It supports the local entrepreneurial ecosystem as it is able to fulfil its core function of providing these services, thus creating the necessary preconditions for self-sustaining opportunistic entrepreneurial activities and exhibiting positive externalities. In addition, local governments need to coordinate and complement with other key elements of the local entrepreneurial ecosystem to more effectively promote the growth of local opportunity entrepreneurship.

This study makes the following contributions. First, it contributes to the entrepreneurial ecosystem literature by providing a more analytical and holistic framework for the supporting role of local governments in local entrepreneurial ecosystems in an underdeveloped institutional environment. Second, the study provides empirical evidence from the world's largest emerging economies and complements case studies of entrepreneurial ecosystems in developed institutional settings. Finally, this study makes policy recommendations on measures to establish local economic entities in an underdeveloped institutional environment.

2. The role of local governments and entrepreneurial ecosystems

2.1 local government

Local government is widely recognized as a key factor in shaping local opportunity entrepreneurship and is also recognized as a source of innovation and wealth. This is in sharp contrast to survival entrepreneurship, which aims to meet a person's physiological or security needs due to unemployment, economic decline and poverty. While local governments may enable entrepreneurs to take advantage of market opportunities and establish their own businesses through preferential policies or government-funded schemes, it has been recognized that local governments alone cannot generate vibrant and sustainable self-employment.

2.2 Entrepreneurship Ecosystem

An entrepreneurial ecosystem is defined as "a set of interdependent actors and factors that coordinate with each other to achieve productive entrepreneurship in a specific field". Earlier research on entrepreneurial ecosystems noted the influence of local economic, social and political structures on the entrepreneurial process and emphasized the importance of regional dynamics in promoting opportunistic entrepreneurship and innovation. They argue that complementary factors help to create an environment conducive to knowledge production and lead to spillover effects, thereby increasing innovation and entrepreneurial activity. Recent research on the entrepreneurial ecosystem recognizes that local government is an integral part of the entrepreneurial ecosystem. Rather than coordinating and directing entrepreneurial activities, local governments play a supporting role in the entrepreneurial ecosystem to complement the entrepreneurial leadership and provide the necessary prerequisites for an effective entrepreneurial ecosystem, providing an alternative perspective for research opportunities entrepreneurship.

To date, empirical research on entrepreneurial ecosystems has examined how specific local government policies or sponsorships in developed institutional settings can work together with other elements in the local ecosystem to support local entrepreneurship. However, this conclusion cannot be considered the same in an underdeveloped institutional environment. In countries with underdeveloped institutional environments, local governments that can provide public services to entrepreneurs are either missing or less common, let alone provide extensive support. There are also greater country differences in the capacity of regional governments in these countries. In an underdeveloped institutional environment, it is still unclear how local governments can support local entrepreneurial ecosystems.

3. Assumptions

3.1 the Supporting Role of Local Government in the Underdeveloped Institutional Environment

The first argues that in an underdeveloped institutional environment, local government supports EE because it is able to perform its core functions of providing public and social services, including infrastructure, business services, law, and human capital development, which are essential for opportunity entrepreneurship. In a developed institutional environment, these core functions can be performed by local governments or by established market or social actors. However, in an underdeveloped institutional environment, there is little substitutability because of weak markets or social sectors. Local governments are often the sole providers of these public resources to entrepreneurs on a large scale. Inadequate public services and social goods will lead to high entry costs and will hinder the decision of individuals to engage in entrepreneurial activities. All these factors indicate the following hypothesis:

H1: Local government provision of public and social services is positively associated with the growth of local opportunity entrepreneurship.

3.2 the interaction between local government and other key elements within EE

3.2.1 Degree of Marketization

A strong market is a key element of the entrepreneurial system. The strong demand for new products, the substantial supply of resources needed to develop new businesses, and the reduced barriers to entry for new entrants have all created opportunities for entrepreneurs, leading to more entrepreneurial activity. This is consistent with empirical findings from cross-country studies on the impact of markets on entrepreneurship. Economic liberalization that allows markets to allocate resources efficiently has positive effects on both formal and informal entrepreneurship. Different types of economic freedom are positively correlated with opportunity-driven entrepreneurial activity.

In an area with a low degree of marketization, individuals cannot easily obtain resources from the market, nor can they sell products to the market, and the motivation to engage in entrepreneurial activities is also low. Public and social services provided by local governments cannot be used by more people, and the impact of public and social services on entrepreneurship growth will be less obvious in these areas. Therefore, the following hypotheses are proposed:

H2: When the degree of local marketization is high, the positive impact of public and social services provided by regional governments on the growth of opportunity entrepreneurship will be stronger.

3.2.2 Institutions of higher education

EE also recognizes the role of higher education institutions in promoting start-ups. Higher education institutions can generate new knowledge and technology, creating opportunities for entrepreneurs in the region. Higher education institutions can also help develop a region's human capital and can foster an entrepreneurial mindset among students, providing a steady supply of entrepreneurs in the region. In areas with fewer institutions of higher education, fewer individuals have the knowledge and skills needed to start a business. Therefore, the following hypotheses are proposed:

H3: When localities have more higher education institutions, the positive impact of local government provision of public and social services on local opportunity entrepreneurship growth is stronger.

3.2.3 Entrepreneurial culture

In an underdeveloped institutional environment, when a place has an entrepreneurial culture, risk-taking and creative activities are seen as more acceptable to the public, and individuals are encouraged to engage in high-growth business creation as a career path. Public and social services provided by local governments can be used by more people who encourage entrepreneurship. The role models of successful entrepreneurs can further enhance the regional culture and attract more individuals to take advantage of regional government support for start-ups. Therefore, the hypothesis is put forward:

H4: When a local has an entrepreneurial culture, the positive impact of local government provision of public and social services on the growth of local opportunity entrepreneurship is stronger.

3.2.4 Social Entrepreneurship

In most cases, local governments are able to provide adequate public and social services, but when they are unable to provide these services due to information or geographical constraints, social entrepreneurs embedded in society may have more knowledge and information than the government. They can assist local governments in providing public and social services to the public. This has enabled more people to access local government support and have the opportunity to participate in entrepreneurial activities. The following hypotheses are proposed:

H5: When there are more local social entrepreneurship, the positive impact of local government provision of public and social services on the growth of local opportunity entrepreneurship will be stronger.

4. Data and methods

4.1 sample selection

The provincial panel data set of China from 1993 to 2013 is selected. The sample consists of 31 first-level administrative divisions in the People's Republic of China, including 22 provinces, 5 provincial autonomous regions and 4 provincial-level municipalities (hereinafter referred to as "provinces"). The sample covers all provinces in the Chinese mainland, but excludes the Hong Kong Special Administrative Region (SAR) and the Macao Special Administrative Region.

4.2 variable

4.2.1 Dependent variable

Opportunity entrepreneurship, measured by the number of new private enterprises registered each year by province.

4.2.2 Independent variables

The provision of public and social services follows the International Monetary Fund's (IMF) classification of government expenditure, which measures the provision of public and social services by the government, and is used to convert this nominal value into real values in 2010 through the World Bank's deflator index.

The index constructed by NERI is used to measure the development of the market economy in each province over time.

The level of higher education, measured by the total number of institutions of higher education in a given province each year.

Entrepreneurial culture, coded as a dummy variable with a value of 1 for provinces with entrepreneurial culture and 0 otherwise.

Social entrepreneurship, measured by the total number of social organizations registered per province per year.

4.2.3 Control variables

The standard of living is proved to affect the development of the organization and is measured by the average salary of the working population in each province, which is then converted into the actual value of the reference 2010.

GDP growth has a negative impact on entrepreneurial activity. The annual provincial GDP based on 2010 is converted into real value at face value, and GDP growth is calculated as the ratio of the actual value of a province in the current year to the actual value of GDP in the previous year.

Population density, densely populated areas have greater market potential, resulting in more opportunities for the creation of new enterprises. It is calculated as the ratio of the total resident population to the area of a province.

FDI, as well as FDI, has been found to have a mixed impact on business activities. It is measured by the total FDI utilized annually as a percentage of the annual provincial GDP.

Urbanization, calculated as the ratio of the resident population of a city to the total population of a province, to capture the agglomeration effect of cities.

4.3 model

With reference to previous studies, a lagged panel design was employed to assess changes in the dependent variable. The dependent variable is the number of private enterprises registered in a province in t 1; the number of private enterprises registered is also one year behind. The structure of the growth model of private enterprises is as follows:

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A fixed effects model is used that controls for unobserved province-specific effects and partially mitigates the endogenicity problem.

5. Results

5.1 Descriptive Statistics and Correlation Matrix

Table 1 shows the descriptive statistics and correlation matrices for the dependent, independent, and control variables. None has a VIF mean above 7, so multicollinearity does not pose a threat to the fixed-effects model.

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5.2 Benchmark Regression Results

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The results show that provincial government spending on public and social services has a very significant positive impact on the growth of newly registered private enterprises in the province (p <0.001). As a result, provinces with higher spending on public and social services not only have more local newly registered private enterprises at a given time, but also have seen greater growth in the number of local private enterprises over time.

5.3 robustness test

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Model 7 examines the effect of provincial government spending on public and social services on the growth of private enterprises in high-market provinces, and Model 8 examines the effect in low-market provinces, but the effect size in Model 7 is more than twice that in Model 8.

Models 9 and 10 test the impact of provincial government spending on public and social services in provinces with more higher education institutions and provinces with less higher education, respectively, but the effect size in Model 9 is more than 10 times larger than in Model 10.

Models 11 and 12 test the impact of provincial government spending on public and social services in provinces with a more entrepreneurial culture and in provinces without such a culture. This effect is positive and significant only in provinces with more entrepreneurial culture (p <0.001).

Models 13 and 14 test the impact of provincial government spending on public and social services in provinces with more social entrepreneurship and provinces with less social entrepreneurship, but the effect in model 13 is very significant (p <0.001), and the effect size is 10 times that of model 14.

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Use surrogate variables for higher education institutions and entrepreneurial culture to test hypotheses 3 and 4 with the fixed effects model. Table 4 lists the results.

To test Hypothesis 3, the number of academic publications that measure HEI records of HEI Secondary specialized school in STEM disciplines in Model 15 and Model 16, respectively, and the number of teachers in these institutions. Both of these interactive effects are positive and very significant (p < 0.001), suggesting that the positive impact of local government provision of public and social services on local opportunity entrepreneurship growth is stronger when the region has more higher education institutions, especially those specializing in STEM. Hypothesis 3 is still confirmed.

Synthetic variables of entrepreneurial culture were used in Model 17 to test Hypothesis 4. The interaction effect was positive and highly significant (p <0.001). Hypothesis 4 is still confirmed.

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Finally, a dynamic panel data model is used to test the hypotheses. Table 5 shows the results of the dynamic panel data model, which are similar to those produced by the fixed effects model.

Model 18 tests hypothesis 1. The positive coefficient of public and social service expenditure of provincial governments shows that the provision of public and social services by local governments is positively related to the growth of local opportunity entrepreneurship. Hypothesis 1 is still confirmed.

Model 19 tests Hypothesis 2, where the coefficient of the interaction term between provincial government expenditure on public and social services and the market allocation sub-index is positive and significant, which provides support for Hypothesis 2.

Models 20 and 21 use two alternative measures of HEI to test Hypothesis 3. Model 20 uses the number of academic publications specialized in STEM disciplines recorded by higher education institutions, and Model 21 uses the number of faculty at these institutions. The coefficients of both interaction terms are positive and significant. Therefore, Hypothesis 3 is still supported.

Model 22 tests Hypothesis 4 with synthetic variables of entrepreneurial culture. The interaction effects of provincial government spending on public and social services and entrepreneurial culture are positive and significant. Hypothesis 4 was supported.

Model 23 tests Hypothesis 5 that the interaction effect of provincial government expenditure on public and social services and the number of local social organizations is positive and very significant. Hypothesis 5 was still supported.

 

6. Discussion

This study draws on the EE approach to examine the supportive role of local governments in EE to promote opportunistic entrepreneurship in underdeveloped institutional settings. Using China's provincial panel data from 1993 to 2013, highlighting the core function of local governments to provide public and social services has led to the growth of local opportunity entrepreneurship. The effectiveness of local governments in providing public and social services is enhanced when other key elements are present in regional economic entities, including market development, higher education institutions, entrepreneurial culture and social entrepreneurship.

This study contributes to the literature on EE in two ways.

First, this study complements previous research on EE, which has rarely focused on EE in underdeveloped institutional settings, where well-functioning local governments are often absent. It highlights the fact that the core function of local government-the provision of public and social services-is critical to the growth of entrepreneurial opportunities in these institutional environments. In addition, this study suggests that the effectiveness of local government in promoting opportunity entrepreneurship should be collaborative with other key elements of EE. In this regard, this study provides a more specific analytical and holistic framework for local governments in EE and advances our understanding of EE in underdeveloped institutional settings.

Second, this study empirically demonstrates this analysis and overall framework using twenty years of panel data from China's provincial regions. It provides more systematic and generalizable evidence for scholars and policy makers seeking to build self-sustaining EE in underdeveloped institutional settings, and complements case studies in developed institutional settings.

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