"Do Government and Legal Barriers Impede Entrepreneurship?"

Kwapisz, Agnieszka (2018). Journal of Business Venturing Insights.


The link between entrepreneurship and economic growth has been of great interest to researchers and policymakers during recent decades. Research has found that entrepreneurship is important for generating economic growth. Because of this, governments in many countries implement policy initiatives to support small businesses and encourage the creation of new ventures.

This paper uses two data sets: the U.S. Panel Study of Entrepreneurial Dynamics II, which contains information about major barriers entrepreneurs face, and the Economic Freedom of North America Index, which measures the extent to which state policies are supportive of economic freedom.

The results of this paper suggest that government and legal barriers are not major barriers for entrepreneurs. In fact, only a small percentage (6 percent) of entrepreneurs perceive government regulations as the major barrier for their business. Those entrepreneurs who perceive government as the main obstacle, as opposed to other barriers such as financial or personal, are more likely to form a new profitable firm.

Because entrepreneurs are thought to play a vital role in the economy, it is important that the regulatory environment does not inhibit entrepreneurship. Surprisingly, 46% of those who reported government as the main barrier had not checked the regulatory requirements before answering this question. Investigating how institutions can leverage the perceived barriers and improve entrepreneurs’ knowledge about actual regulations is critical. Creating practically-oriented entrepreneurship programs that teach future entrepreneurs the legal and regulatory competencies needed to start up an enterprise help entrepreneurs’ perception of institutional barriers to be better aligned with actual barriers.