Natural resource and entrepreneurship: Economic freedom matters

Abstract

This paper sheds new light on the relationship between resource rents and entrepreneurship, conditional on economic freedom. In a sample of 101 countries, we demonstrate that resource rents encourage people to engage in counterproductive activities by lowering new business density when economic freedom is low. The findings hold up well to a variety of measures as well as forms of resource rents and economic freedom indicators. Additionally, in an effort to establish a threshold for economic freedom, a robustness test using the dynamic panel threshold approach shows that resource rents have asymmetric impacts on entrepreneurship both below and above a value of 7. Therefore, when economic freedom is low, resource rents enhance the incentive to choose rent-seeking activities (bribery, theft, and lobbying) over productive ones, leading to a diversion from the best use of resources and a lack of entrepreneurial spirit.