Agency culture, constitutional provisions and entrepreneurship: a cross-country analysis

Substantial and systematic cross-country variation in entrepreneurship rates has been found in vari- ous studies. We attempt to explain such differences focusing on the interaction between institutional factors and population psychological characteristics. Constitutional provisions supporting economic freedom are our measure of the institutional context, whereas we proxy psychological characteristics with a country’s endowment of agency culture. We apply an IV-GMM treatment to deal with endoge- 20 neity to a data set comprising 86 countries over the period 2004–2013, and we control for de facto vari- ables and other factors that are likely to influence entrepreneurship. Our results demonstrate that agency culture is indeed an important predictor of entrepreneurship and that this effect is moderated by constitutional provisions supporting economic freedom. In particular, the impact of agency culture on entrepreneurship becomes stronger as a country expands the constitutional protection of eco- 25 nomic rights.