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Informal Institutions & Entrepreneurship

Vaillant, Y., Lafuente, E. (2007). Do Different Institutional Frameworks Condition the Influence of Local Fear of Failure and Entrepreneurial Examples over Entrepreneurial Activity? Entrepreneurship and Regional Development, 19: 313 – 337.

Summary:

The growing awareness over the last decades of the importance of new businesses and small and medium sized enterprises (SMEs) within economic development has led many public administrations from all political ideologies and of all administrative levels to develop policy favouring and stimulating the creation of new enterprises.

Entrepreneurship has also become a tool for economic development in rural areas. The EU and many Organisation for Economic Cooperation and Development (OECD) countries have introduced over the last decade policies that uses entrepreneurship as an essential tool for rural development. In Europe, the diversification of the productive base of rural areas has become an objective of rural development policy (European Commission 1997a). Likewise, there is increasing demand and interest in placing new business formation as a key element within the development and revitalisation process of lagging European areas. For its part, the OECD has included entrepreneurship and endogenous economic growth as one of the main focus of its New Rural Paradigm (OECD 2006).

This research uses a Spanish dataset for 2003 of 4,877 individuals, and it aims to aims to determine the specificities of entrepreneurial activity in rural areas with a special focus on how different institutional frameworks can condition the influence of two social-cultural traits that the OECD (2003) and the European Commission (2003) identify as amongst the most important for entrepreneurship: social fear of entrepreneurial failure, and the presence of entrepreneurial role-models. The main objective is to examine the impact of the selected social traits over entrepreneurial activity in rural versus urban areas of Spain and then specifically compare their impact in rural Catalonia as compared to that found for rural areas of the rest of Spain. We also want to analyse the influence of the selected factors over the superior entrepreneurial activity levels found in rural Catalonia.

The main contribution of the study indicates that the difference in entrepreneurial activity across territories can in part be explained by the differentiated impact of certain socio-cultural factors.

We report that the belief in the existence of a social stigma to entrepreneurial failure is an important constraint for entrepreneurial activity in Spain, although this effect does not manifest any significant differentiated impact in rural areas. Furthermore, we find that rural Catalonia’s exceptional entrepreneurial performance is mainly due to the superior impact of positive entrepreneurial examples (role-model effect).

These findings back the growing call for territorial specificity in the formulation and application of entrepreneurship support measures and promotion. Entrepreneurship support policies and programmes have mostly been laid out in a uniform fashion across political and administrative boundaries. Our findings demonstrate the need for greater attention and adaptation of entrepreneurship support and promotion measures distinguishing between rural and urban areas.

Consequently, entrepreneurship promotion should become an integral part of any rural development plan. The results of the study shows that entrepreneurship is conditioned by the local institutional framework, and as such should not be isolated from other rural policies. The sector-base character of most rural policy-making has created a chasm separating the administrative bodies that have historically formulated rural policy from those that have promoted entrepreneurship. Because of the growing importance of entrepreneurship and the diversification of the rural economic fabric, rural policy should become a multi-sector cross-governance exercise that brings under the same scope all public decisions affecting rural areas, including entrepreneurship promotion. In line with the New Rural Paradigm (OECD 2006), rural entrepreneurship promotion should be seen as part of a greater holistic rural policy and should have both a horizontally (across ministries) and vertically (across political echelons) coordinated governance.

More precisely, the findings of this paper support the argument that entrepreneurship promotion, especially in what concerns fostering of an adequate socio-cultural context, fertile for new business creation and growth, is more often than not a generational process. The search for short-term results for such policies can result, depending on the performance measurement tools used, in the mistaken impression that in rural areas entrepreneurship support policies are not having the desired impact.

This paper opens up lines for future research, where new studies could attempt to overcome one of our main limitations by introducing a greater number of socio-cultural variables into the analysis. Further studies could also take into consideration a longitudinal approach. Future research can correct for the lack of territorial differentiation of Spanish areas outside Catalonia, as well as include comparisons with other European rural areas.