Techno-Institutional Leap and the Formation of New Firms

Abstract

In this paper we focus on factors that affect new business entry as they have been shown to generate both employment and economic growth. Thus, the purpose of this paper is to identify the economic, political, social and technological factors those that have the greatest impact on the creation of new firms. We put forward the idea of a techno-institutional leap, meaning that information and communication technologies (ICTs), because of their multipurpose nature, have the ability to help potential entrepreneurs overcome weaknesses in other areas of country economies. The study uses a fixed effects statistical model, developed from ITU and World Bank data. The results support the hypothesis of the techno-institutional leap and show that income and governance elements related to business operations and ICTs affect new business entry. Other factors such as general governance, income inequality, access to credit, trade, and education were not significant.

The leap happens because of the virtuous cycle that they generate. Even though most developing nations are still behind in access, their populations are aware of the Internet and its capabilities. This means that the further expansion of networks will lead also to a quick adoption of the applications and services that are now available on the Internet. In this paper, we wish to determine if ICTs can help to overcome some of the negative impact that adverse political, economic, social and technological factors have on the development of new businesses.

The main contribution of this paper is, therefore, to determine if ICT's have a positive impact on business creation and have the capacity to help business owners overcome deficiencies caused by economic, political and social factors in the countries where they operate.

Keywords: New business, ICTs, governance, income, credit, education, trade, techno-institutional leap

JEL Classification: L80, L96, O14