new economy and trad

new economy and trad

Financial Openness, Institutional Quality and Entrepreneurship: A Comparison of Developed and Developing Countries

Document Type : Research Paper

Authors
Sediqeh Zadmirzaee 1
Bagher Adabi firouzjaee 2
Ali Karshenasan 3
1 MSC of entrepreneurship management, Department of Economic Science, Faculty of Humanities and physical education, Gonbad Kavous University, Gonbad Kavous, Iran.
2 Assistant Professor of Economics, Department of Economic Science, Faculty of Humanities and physical education, Gonbad Kavous University, Gonbad Kavous, Iran
3 Assistant Professor of Economics, Department of Economic Science, Faculty of Humanities and physical education, Gonbad Kavous University, Gonbad Kavous, Iran.
10.30465/jnet.2026.54597.2290
Abstract
this study aims to explore how the degree of financial openness affects entrepreneurship, with an emphasis on the role of governance indicators for two groups of selected developed and developing countries, based on a dynamic panel data model (GMM) for the period 2006–2022. The results show that: First, while the impact of financial openness on entrepreneurship is positive and significant for developed countries, this effect is negative for developing countries. Second, the six governance indicators have a positive and significant effect on entrepreneurship in both country groups, although the magnitude of significance is greater in developed countries. The main finding of the study is that, in developing countries, even though financial openness has a negative impact on entrepreneurship, its interaction effect with the governance index on entrepreneurship is positive and significant. This highlights an important point that developing countries can enhance their financial absorption capacity by improving components of the governance index—such as political stability, corruption control, government effectiveness, rules and regulations, regulatory quality, and accountability. It is caused these developing countries benefit from the positive advantages of financial openness,..
Keywords
entrepreneurship
Financial Openness
governace index
developed and developing counytries
GMM- approch
زیوری، امینه، محمدی خیاره، محسن و مظهری، رضا (1398). تاثیر دسترسی به منابع مالی بر فعالیت‌های‌ کارآفرینانه: مقایسه کشورهای منتخب توسعه‌یافته و در حال توسعه. فصلنامه توسعه کارآفرینی، 12 (4)، 580-561.
مرادی، منیر، حسنوند، داریوش، درخشانی، کاوه، سرلک، احمد (1400). اثر تعامل کنترل فساد و اعتماد و تامین مالی بر توسعه کارآفرینی در کشورهای منتخب منا، فصلنامه مدیریت کسب و کار، 13 (51)، 166-147.
اربابیان، شیرین و زمانی، زهرا (1402). تحلیل اثر تعاملی توسعه مالی و سرمایه انسانی بر کارآفرینی در کشورهای منتخب، توسعه و سرمایه، 8 (1)، 21-1.
سلاطین، پروانه، کاشفی، علیرضا (1403). بازارهای مالی و کارآفرینی، پژوهشنامه اقتصاد و کسب و کار، 33 (15)، 37-19.
محمدی خیاره، محسن و زیوری، امینه (1403). ارتباط بین توسعه مالی و کارآفرینی با تأکید بر کیفیت نهادی در کشورهایMENA ، توسعه و سرمایه، 9 (1)، 155-137.
دهقانی، مریم و نجاتی، مهدی (1404). بررسی تأثیر باز بودن مالی بر توسعه بازار سرمایه ایران، توسعه و سرمایه، 10 (2)، 124-111.
شیرمهنجی، محمدباقر، مرادی زاده، مهدیه و نوراحمدی، محمدجواد (1400). متاآنالیز چندسطحی رابطهی بین آزادسازی مالی و توزیع درآمد، فصلنامه تحقیقات اقتصادی، 56 (3)، 534-507.
Abegaz, M. B., Debela, K. L., & Hundie, R. M. (2023). The effect of governance on entrepreneurship: from all income economies perspective. Journal of Innovation and Entrepreneurship, 12(1), 1-18.
Acemoglu, D., & Robinson, J. A. (2019). Rents and economic development: the perspective of Why Nations Fail. Public Choice, 181(1), 13-28.
Ajide, F. M., & Ojeyinka, T. A. (2022). Financial development and entrepreneurship: insights from Africa. Journal of Financial Regulation and Compliance, 30(5), 596-617.
Amin, A., Khan, R. U., & Maqsood, A. (2023). Financial development, entrepreneurship and financial openness: evidence from Asia. Journal of Economic and Administrative Sciences, 39(3), 671-686.
Andreasen, E., & Valenzuela, P. (2016). Financial openness, domestic financial development and credit ratings. Finance Research Letters, 16, 11-18.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297.
Audretsch, D. B. (2023). Institutions and entrepreneurship. Eurasian Business Review, 13(3), 495-505.
Avlijaš, G. (2025). Macro-level drivers of business creation: Insights from World Bank panel data. International Review, (3-4), 46-54.
Bau, N., & Matray, A. (2023). Misallocation and capital market integration: Evidence from India. Econometrica, 91(1), 67-106.
Baumol, W. J. (1996). Entrepreneurship: Productive, unproductive, and destructive. Journal of business venturing, 11(1), 3-22.
Bayar, Y., Gavriletea, M. D., & Ucar, Z. (2018). Financial sector development, openness, and entrepreneurship: panel regression analysis. Sustainability, 10(10), 3493.
Bekaert, G., Harvey, C. R., & Lundblad, C. (2011). Financial openness and productivity. World development, 39(1), 1-19.
Bennett, N. J., Di Franco, A., Calò, A., Nethery, E., Niccolini, F., Milazzo, M., & Guidetti, P. (2019). Local support for conservation is associated with perceptions of good governance, social impacts, and ecological effectiveness. Conservation letters, 12(4), e12640.
Bhutta, M. A., Sheikh, M. R., & Hussain, I. (2024). Trade openness, market capitalization and entrepreneurial ventures: implications for business and industrial growth of Pakistan. Journal of Entrepreneurship and Business Venturing, 4(1).
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of econometrics, 87(1), 115-143.
Boh, W., Constantinides, P., Padmanabhan, B., & Viswanathan, S. (2023). Building digital resilience against major shocks. MIS quarterly, 47(1), 343-360.
Bowen, H. P., & De Clercq, D. (2008). Institutional context and the allocation of entrepreneurial effort. Journal of international business studies, 39(4), 747-767.
Browder, R. E., Dwyer, S. M., & Koch, H. (2024). Upgrading adaptation: How digital transformation promotes organizational resilience. Strategic Entrepreneurship Journal, 18(1), 128-164.
Bylund, P. L., & McCaffrey, M. (2017). A theory of entrepreneurship and institutional uncertainty. Journal of Business Venturing, 32(5), 461-475.
Caglayan, M., & Demir, F. (2014). Firm productivity, exchange rate movements, sources of finance, and export orientation. World Development, 54, 204-219.
Cardillo, G., Bendinelli, E., & Torluccio, G. (2023). COVID‐19, ESG investing, and the resilience of more sustainable stocks: Evidence from European firms. Business Strategy and the Environment, 32(1), 602-623.
Chinn, M. D., & Ito, H. (2006). What matters for financial development? Capital controls, institutions, and interactions. Journal of development economics, 81(1), 163-192.
Chinn, M. D., & Ito, H. (2008). A new measure of financial openness. Journal of comparative policy analysis, 10(3), 309-322.
Chowdhury, F., Audretsch, D. B., & Belitski, M. (2019). Institutions and entrepreneurship quality. Entrepreneurship theory and practice, 43(1), 51-81.
Clayton, P., Feldman, M., & Montmartin, B. (2024). Entrepreneurial finance and regional ecosystem emergence. Small Business Economics, 62(4), 1493.
Dutta, N., & Meierrieks, D. (2021). Financial development and entrepreneurship. International Review of Economics & Finance, 73, 114-126.
Dutta, N., & Sobel, R. S. (2018). Entrepreneurship and human capital: The role of financial development. International Review of Economics & Finance, 57, 319-332.
Edison, H. J., Levine, R., Ricci, L., & Sløk, T. (2002). International financial integration and economic growth. Journal of international money and finance, 21(6), 749-776.
Ehigiamusoe, K. U., & Samsurijan, M. S. (2021). What matters for finance‐growth nexus? A critical survey of macroeconomic stability, institutions, financial and economic development. International Journal of Finance & Economics, 26(4), 5302-5320.
Fagiolo, G., Giachini, D., & Roventini, A. (2020). Innovation, finance, and economic growth: an agent-based approach. Journal of Economic Interaction and Coordination, 15(3), 703-736.
Fahim, O., & Naamane, S. (2021). Macroeconomic factors and birth of new businesses in developing countries: Evidence from a dynamic system GMM Approach. Management and Economics Review, 6(1), 61-69.
Feng, G. F., Niu, P., Wang, J. Z., & Liu, J. (2022). Capital market liberalization and green innovation for sustainability: Evidence from China. Economic Analysis and Policy, 75, 610-623.
Ferreira, M. A., & Matos, P. (2008). The colors of investors’ money: The role of institutional investors around the world. Journal of financial economics, 88(3), 499-533.
Gaies, B., Najar, D., Maalaoui, A., Kraus, S., & El Tarabishy, A. (2023). Does financial development really spur nascent entrepreneurship in Europe?—A panel data analysis. Journal of Small Business Management, 61(6), 2440-2487.
Gani, A. (2026). Domestic credit effect on new business density in the high-and middle-income countries. Journal of Financial Economic Policy, 1-19.
Giannetti, M. (2007). Financial liberalization and banking crises: The role of capital inflows and lack of transparency. Journal of Financial Intermediation, 16(1), 32-63.
Gregory, R. P. (2019). Financial openness and entrepreneurship. Research in International Business and Finance, 48, 48-58.
Guo, Jialin, and Desheng Wu. "Capital market openness and bank credit risk: Evidence from listed commercial banks." Finance Research Letters 63 (2024): 105282.
Gygli, S., Haelg, F., Potrafke, N., & Sturm, J. E. (2019). The KOF globalisation index–revisited. The Review of International Organizations, 14(3), 543-574.
Holcombe, R. G. (2013). Crony capitalism: By-product of big government. The Independent Review, 17(4), 541-559.
Hsu, P. H., Tian, X., & Xu, Y. (2014). Financial development and innovation: Cross-country evidence. Journal of financial economics, 112(1), 116-135.
Kaminsky, G. L., & Schmukler, S. L. (2008). Short-run pain, long-run gain: Financial liberalization and stock market cycles. Review of Finance, 12(2), 253-292.
Larrain, M., & Stumpner, S. (2017). Capital account liberalization and aggregate productivity: The role of firm capital allocation. The Journal of Finance, 72(4), 1825-1858.
Léon, F. (2019). Long-term finance and entrepreneurship. Economic Systems, 43(2), 100690.
Levine, R. (1999). Law, finance, and economic growth. Journal of financial Intermediation, 8(1-2), 8-35.
Li, L., He, W., & Zheng, S. (2024). Capital market opening and share repurchases: Evidence from China's listed companies absorbed in the MSCI Emerging Markets Index. Finance Research Letters, 66, 105722.
Logogye, L., Adusei, M., Poku, K., & Aawaar, G. (2025). Financial inclusion—entrepreneurship nexus: evidence from a threshold analysis. Journal of Business Economics, 95(4), 587-616.
Luo, L., Yamanoi, J., Ma, X., & Lei, L. (2026). Beyond direct impact: Exploring inward FDI’s multifaceted effects on new venture creation. Journal of Business Venturing, 41(2), 106562.
Majerbi, B. & Rachdi, H. (2014). Systemic Banking Crises, Financial Liberalization and Governance, Multinational Finance Journal, 18(3/4), 281-336
Manova, K. (2008). Credit constraints, equity market liberalizations and international trade. Journal of International Economics, 76(1), 33-47.
Milani, S., & Neumann, R. (2018). International financial openness and industrial R&D. Economics Bulletin, 38(1), 490-500.
Mishkin, F. S. (2009). Is monetary policy effective during financial crises?. American Economic Review, 99(2), 573-577.
Moshirian, F., Tian, X., Zhang, B., & Zhang, W. (2021). Stock market liberalization and innovation. Journal of Financial Economics, 139(3), 985-1014.
Noah, A. O., & Olalekan, D. O. (2025). Does Financial Development Drive Entrepreneurship in Africa? A Panel Data Analysis. Managing Global Transitions, 23(1).
North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge university press.
Obstfeld, M. (2009). International finance and growth in developing countries: What have we learned? IMF Staff Papers, 56(1), 63–111.
Omri, A. (2020). Formal versus informal entrepreneurship in emerging economies: The roles of governance and the financial sector. Journal of Business Research, 108, 277-290.
Othman, N. B., Ibrahim, M., & Abdul Hamid, B. (2025) The Moderating Role of Institutional Quality in the Finance–Entrepreneurship Nexus: Evidence from Developing Countries. SSRN. Available at: https://ssrn.com/abstract=5345325
Ozkok, Z. (2015). Financial openness and financial development: An analysis using indices. International Review of Applied Economics, 29(5), 620-649.
Pan, X., Han, J., & Wu, Y. (2025). Financial Openness and Corporate Resilience: Evidence from China. Sustainability, 17(24), 11063.
Porta, R. L., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of political economy, 106(6), 1113-1155.
Prasad, E., Rogoff, K., Wei, S. J., & Kose, M. A. (2003). Effects of financial globalization on developing countries: some empirical evidence. In India’s and China’s recent experience with reform and growth (pp. 201-228). London: Palgrave Macmillan UK.
Rahman, M. M., Deb, B. C., Rahman, M. S., Uddin, M. M., Ramzan, M., Hossain, M. J., & Uddin, G. (2023). Does trade openness affect global entrepreneurship development? Evidence from BRICS countries. Annals of Financial Economics, 18(03), 2350001.
Reddy, C.D., 2024. Nations’ share of innovative entrepreneurs: financial systems to the rescue in difficult institutional settings. Journal of innovation and entrepreneurship, 13(1), p.74.
Rodriguez, C. M. (2017). The growth effects of financial openness and exchange rates. International Review of Economics & Finance, 48, 492-512.
Rodrik, D., & Subramanian, A. (2009). Why did financial globalization disappoint?. IMF staff papers, 56(1), 112-138.
Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. The stata journal, 9(1), 86-136.
Sobel, R. S. (2008). Testing Baumol: Institutional quality and the productivity of entrepreneurship. Journal of Business Venturing, 23(6), 641-655.
Stiglitz, E. (2000). Capital Market Liberalization, Economic Growth, and Instability, World development 28 (6), 1075-1086.
Williamson, O. E. (1985). The economic institutions of capitalism. Firms, markets, relational contracting. In Das Summa Summarum des Management: Die 25 wichtigsten Werke für Strategie, Führung und Veränderung (pp. 61-75). Wiesbaden: Gabler.
Williamson, O. E. (1989). Transaction cost economics. Handbook of industrial organization, 1, 135-182.
Youssef, A. B., Boubaker, S., & Omri, A. (2018). Entrepreneurship and sustainability: The need for innovative and institutional solutions. Technological Forecasting and Social Change, 129, 232-241.
Yu, Y., & Qayyum, M. (2023). Impacts of financial openness on economic complexity: Cross‐country evidence. International Journal of Finance & Economics, 28(2), 1514-1526.
Zhu, X., Asimakopoulos, S., & Kim, J. (2020). Financial development and innovation-led growth: is too much finance better? Journal of International Money and Finance, 100, 102083.

  • Receive Date 13 May 2026
  • Revise Date 30 June 2026
  • Accept Date 05 August 2026