Mid Sweden University

The overall aim of this thesis is to explore the theoretical and empirical relationship between entrepreneurship and bureaucracy, and to examine the cause and effect of entrepreneurship. From this overall aim, four specific questions are investigated.

The first question deals with the issue of combining agency and structural explanations of entrepreneurship. Traditional one-sided explanations are discussed, and a two-sided explanatory model of the entrepreneurial choice is presented and tested empirically. In relation to this, the issue of causal heterogeneity is discussed and tested. The empirical results indicate that several country-level variables, including bureaucracy, influence the entrepreneurial choice at the individual level, and that the effect of some individual variables on the entrepreneurial choice varies according to structural context. The following two questions deal with the relationship between the entrepreneur and bureaucracy. The first one describes how the entrepreneurial process is regulated by bureaucracy, and how entrepreneurs solve regulatory problems. From this study it is clear that the smaller entrepreneurs comply with 'good' law in order to enjoy the benefits of formality, and avoid 'bad' law to reduce the costs of formality.

The larger entrepreneurs comply with all regulations and are very frustrated over delays and inefficiency. The smaller entrepreneurs have a more understanding attitude towards bureaucratic inefficiency and have less trouble solving regulative problems. Both groups have strategies for solving regulative problems; most frequently this involves social ties with public officials and bribes. The second of the relationship questions investigates the extent to which entrepreneurs are obstructed by or dissatisfied with the regulatory authorities, and whether this varies over different types of entrepreneurs. Based on Schumpeter’s distinction between entrepreneurs and other, less creative, business owners, the overall results indicate that creative companies have larger problems with regulatory authorities.

The conclusion is that bureaucracy tends to be a problem with regard to new ideas, but not for new companies. The fourth question raised deals with the economic effects of entrepreneurship and bureaucracy. Can entrepreneurship and bureaucracy explain variation in economic development across countries? The results indicate that entrepreneurship combined with bureaucracy offer high explanatory values and that a large part of the variance in economic development, left unexplained by agency behaviour, is explained by the regulation of that behaviour. In terms of policy implications the results indicate that the removal of bureaucratic barriers to entrepreneurs could have large potential payoffs in terms of economic growth.