A country-level institutional perspective on entrepreneurship productivity: The effects of informal economy and regulation

Abstract Developing the concept of institutional incongruence and employing panel data from 60 countries, we outline an alternative view of the informal economy and the effects of regulative institutions on entrepreneurship productivity. We find evidence that the informal economy's size is, largely, negatively associated with entrepreneurship productivity, and that in the presence of a large informal economy, governmental efforts to improve governance quality can be counterproductive. Our results suggest policy interventions aimed at changing institutions to practice formal entrepreneurship should be implemented cautiously to avoid inducing institutional incongruence.