Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1153: Entrepreneurship and Institutions: A Bidirectional Relationship

Niklas Elert () and Magnus Henrekson ()
Additional contact information
Niklas Elert: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Magnus Henrekson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: The interplay between entrepreneurship and institutions is crucial for economic development; however, the view that institutions determine the extent to which entrepreneurial activity is productive is only part of the story. We argue that causality is bidirectional, in that entrepreneurship is also, for better or for worse, one of the main drivers of institutional change. Through their actions, entrepreneurs have a fundamental influence on institutions, whether they abide by them, actively try to alter them, or evade them. Particular attention is given to evasive entrepreneurship, an entrepreneurial function which, until recently, has been an underappreciated and poorly understood source of innovation and institutional change. We argue that the influence of evasive entrepreneurship on the economic trajectories of societies is likely to only grow in the future.

Keywords: Economic development; Entrepreneurship; Evasive entrepreneurship; Innovation; Institutional change; Regulation

JEL-codes: L50; M13; O31; P14

61 pages, First version: February 16, 2017. Revised: May 5, 2017.

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