The relationship between financial development and entrepreneurship with an emphasis on institutional quality in MENA countries

Objective: One of the main obstacles to the flourishing development of entrepreneurial activities is the limited access of entrepreneurs to financial resources. On the other hand, the role of institutions in entrepreneurial development has been emphasized. Existing findings on the relationship between entrepreneurship and financial development are vague and inconclusive. Meanwhile, the relationship between these two variables in the economies of the Middle East and North Africa (MENA) region remains unknown.



Methods: In this study, the impact of financial development on entrepreneurship in 11 selected countries in the MENA region between 2007 and 2020 is investigated using a generalized method of moments (GMM) and a threshold panel model. The financial development index used in this study is a general measure of financial development by the international monetary fund (IMF). Different from a single measure, it covers the overall performance of the financial system in terms of accessibility, depth and efficiency.



Results: The results show that financial development measured by different indicators has a positive and significant impact on entrepreneurship development. The results also show that the effect of financial development on entrepreneurship is statistically significant only in the presence of healthy institutions, especially the quality of good governance. Finally, the results suggest that countries with relatively low levels of financial development, such as the MENA region, stand to benefit most from improved governance.



Conclusion: Considering the impact of institutional quality and financial development on entrepreneurship, the policy recommendation of this study is to formulate a national strategic plan to improve financial development as well as policies aimed at improving governance to maximize the impact of financial development on entrepreneurship activity.

Objective: One of the main obstacles to the flourishing development of entrepreneurial activities is the limited access of entrepreneurs to financial resources. On the other hand, the role of institutions in entrepreneurial development has been emphasized. Existing findings on the relationship between entrepreneurship and financial development are vague and inconclusive. Meanwhile, the relationship between these two variables in the economies of the Middle East and North Africa (MENA) region remains unknown.



Methods: In this study, the impact of financial development on entrepreneurship in 11 selected countries in the MENA region between 2007 and 2020 is investigated using a generalized method of moments (GMM) and a threshold panel model. The financial development index used in this study is a general measure of financial development by the international monetary fund (IMF). Different from a single measure, it covers the overall performance of the financial system in terms of accessibility, depth and efficiency.



Results: The results show that financial development measured by different indicators has a positive and significant impact on entrepreneurship development. The results also show that the effect of financial development on entrepreneurship is statistically significant only in the presence of healthy institutions, especially the quality of good governance. Finally, the results suggest that countries with relatively low levels of financial development, such as the MENA region, stand to benefit most from improved governance.



Conclusion: Considering the impact of institutional quality and financial development on entrepreneurship, the policy recommendation of this study is to formulate a national strategic plan to improve financial development as well as policies aimed at improving governance to maximize the impact of financial development on entrepreneurship activity.

Objective: One of the main obstacles to the flourishing development of entrepreneurial activities is the limited access of entrepreneurs to financial resources. On the other hand, the role of institutions in entrepreneurial development has been emphasized. Existing findings on the relationship between entrepreneurship and financial development are vague and inconclusive. Meanwhile, the relationship between these two variables in the economies of the Middle East and North Africa (MENA) region remains unknown.



Methods: In this study, the impact of financial development on entrepreneurship in 11 selected countries in the MENA region between 2007 and 2020 is investigated using a generalized method of moments (GMM) and a threshold panel model. The financial development index used in this study is a general measure of financial development by the international monetary fund (IMF). Different from a single measure, it covers the overall performance of the financial system in terms of accessibility, depth and efficiency.



Results: The results show that financial development measured by different indicators has a positive and significant impact on entrepreneurship development. The results also show that the effect of financial development on entrepreneurship is statistically significant only in the presence of healthy institutions, especially the quality of good governance. Finally, the results suggest that countries with relatively low levels of financial development, such as the MENA region, stand to benefit most from improved governance.



Conclusion: Considering the impact of institutional quality and financial development on entrepreneurship, the policy recommendation of this study is to formulate a national strategic plan to improve financial development as well as policies aimed at improving governance to maximize the impact of financial development on entrepreneurship activity.