1. ¹McColl School of Business, Queens University of Charlotte, Charlotte, USA
2. ²Brock University, St Catharines, Ontario, Canada

Correspondence: H P Bowen, McColl School of Business, Queens University of Charlotte, 1900 Selwyn Avenue, Charlotte, NC 28274, USA. Tel: +1 704 688 2707; Fax: +1 704 337 2403; E-mail: bowenh@queens.edu

Received 16 March 2005; Revised 27 December 2006; Accepted 9 May 2007; Published online 20 December 2007.

Abstract

The type of activity in which entrepreneurs engage is likely to influence the potential contribution of entrepreneurship to economic growth and prosperity. Yet the entrepreneurship literature has focused largely on identifying the determinants of the level, rather than the type, of entrepreneurial activity. In this paper we hypothesize that a country's institutional environment will influence the allocation of entrepreneurial effort, and in particular will influence the extent to which entrepreneurial effort is directed toward high-growth activities. We test our hypotheses using data on 40 countries over the period 2002–2004. We find that the allocation of entrepreneurial effort toward high-growth activities is positively related to a country's financial and educational activities targeted at entrepreneurship, and is negatively related to a country's level of corruption. Our study is the first to provide empirical evidence that institutional characteristics significantly influence the allocation of entrepreneurial effort, and it is therefore the first to identify an empirically important channel through which a nation's institutions may contribute to economic growth.