Why are Some Nations More Entrepreneurial than Others? Investigating the Link Between Cultural Tightness-Looseness and Rates of New Firm Formation

Abstract

We evaluate the role of cultural tightness-looseness as an explanation for cross-cultural variation in new firm formation rates. Modeling cultural tightness-looseness as an antecedent for individual entrepreneurial dispositions and informal institutions, we examine its impact on the number of new limited-liability companies registered per 1,000 people and rate of new entrepreneurs in the working-age population. Our findings show that cultural tightness-looseness explains 56% of the variation in new firm formation rates in a sample of 156 nations, and 71% of the variation in the rate of new entrepreneurs in the 50 U.S. states, with greater cultural looseness corresponding to higher rates of entrepreneurship, on average. This effect is robust to various model specifications, measures, and controls for other cultural dimensions.

Keywords: culture, entrepreneurship, tightness-looseness, new firm formation rates

JEL Classification: L26, M13, O57, O44, Z13