INSTITUTIONAL ENVIRONMENT AND ECONOMIC DEVELOPMENT IN EU COUNTRIES: THE IMPACT ON NEW BUSINESS FORMATION

The aim of our research is to examine empirically how institutional environment specific factors affect the dynamics of new business creation, depending on the stage of development of the economy. Our analysis focuses on a sample of member countries of the European Union, using panel data estimation techniques within a period of fifteen years, between 2002 and 2016. In our econometric model, the dependent variable is the entrepreneurial activity in its early stages, and as explanatory variables we included several indicators that define the institutional environment of a country. In addition, we investigate the effects of quality of governance institutions on creating new businesses, depending on the degree of development of economies. The results of our study highlight that the formation of new businesses in EU countries is significantly linked to the institutional environment. Moreover, the effects of institutional variables on the creation of new businesses are different, depending on the stage of economic development of the studied countries. Overall, through its content, this study reaffirms the crucial importance of the solidity and quality of the institutional environment for encouraging entrepreneurship and creating new businesses.