The Effect of Shadow Economy on Necessity-Driven and Opportunity-Driven Entrepreneurship

Document Type : Research Paper

Authors

1 Department of Economics, Faculty of and Social Science and Economics, Alzahra University, Tehran, Iran

2 MA in Entrepreneurship Management, Department of Entrepreneurship Management Science and Research Branch, Islamic Azad University,

3 Department of Economic and Accounting University of Hormozgan, Hormozgan, Iran

10.22059/jed.2024.357087.654166

Abstract

ABSTRACT
 

Objective: Entrepreneurship by understanding and identifying business opportunities, creating employment, increasing national production and rising social welfare is as one of the ways to achieve development. Entrepreneurship based on motivation has divide into two categories: necessity-oriented and opportunistic. Necessity-oriented entrepreneurs are entrepreneurs who forced to start a business. However, opportunistic entrepreneurs are entrepreneurs who have entered the field of entrepreneurship with the aim of job independence or increasing profits. Motivation-based entrepreneurship is divided into necessity and opportunism. On the other hand, in all developing and developed countries, part of the economic activities are carried out outside the formal structure and in the shadows, which can affect the formal sector, including entrepreneurship. The shadow economy is proposed as one of the structural features that exist more or less in all economies of the world, both developing and developed, and can affect the entrepreneurial process. Regarding the relationship between the shadow economy and necessity-oriented and opportunistic entrepreneurship, other theories are presented as follows: modernization theory (over time and with the extensive growth of the formal economy, the shadow economy vanished), theory Structuralism (it is the first theory that states how the shadow economy has positive effects on necessity oriented entrepreneurship) Neoliberal theory (opportunistic creators not out of necessity but to avoid costs and save time They go to informal work).
Method: In this regard, the present study with the approach of panel data and generalized moment method to determine the effect of the shadow economy on the necessity-driven and opportunity-driven entrepreneurship in two groups of developing and developed selected countries(according to the availability of their data) during the period 2009-2020. In this research, the indices of necessity-oriented entrepreneurship and opportunistic entrepreneurship published by the Global Entrepreneurship Observatory are used as operational substitutes for entrepreneurship. The process of measuring the size of the shadow economy is fiendishly complicated. Because people active in it try to remain unknown. Little information is always available about shady activities. Therefore, to measure the shadow economy, the results of previous calculations about the size of the shadow economy in the countries have been used for measuring the shadow economy.
Results: The results showed that the shadow economy has a positive and significant effect on necessity-driven entrepreneurship in both groups of selected countries; the difference is that its estimated coefficient has been higher in developing countries. Also, the effect of shadow economy on opportunity-driven entrepreneurship in both groups of selected countries has been negative and significant; the difference is that its estimated coefficient is higher in developing countries. A one percent increase in the ratio of the shadow economy to GDP has caused an increase of 0.091 and 0.047 percent of necessity-oriented entrepreneurship in selected developing and developed countries, respectively. Because the increase in the shadow sector of the economy means not reporting and registering some economic activities. A one percent increase in the ratio of the shadow economy to GDP has caused a decrease of 0.185 and 0.127 percent in opportunistic entrepreneurship in selected developing and developed countries, respectively. The increase of the shadow economy and the lack of recording and reporting of economic activities lead to deviation from the competitive conditions of the market, the lack of proper allocation of resources, the prevalence of unfair competition, the reduction of government tax revenues, and the weakening of public and essential services. In addition, the effect of control variables of government institutions on necessity-driven entrepreneurship in both groups of selected countries was negative and significant and on opportunity-driven entrepreneurship in both groups of selected countries was positive and significant. The effect of control variable of education on necessity entrepreneurship has been negative and significant in both groups of selected countries. However, its effect on opportunity-driven entrepreneurship in developed selected countries has been positive and significant and in developing selected countries has not been statistically significant.
Conclusion: According to the main results of the research and considering the importance of opportunistic entrepreneurship in the economic growth and development of countries, whether in developing countries or in developed countries, and the negative impact of the shadow economy on this entrepreneurship, it is suggested that the control of the shadow economy It should be a priority for policymakers and to control the size of the underground economy, employment-generating policies should considered first in order to reduce the unemployment rate. Commercial liberalization and the amendment of the laws related to trade tariffs and the strengthening of the country economic and regulatory institutional structure to improve competitiveness should also be considered in order to achieve this goal.

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References

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Journal of Entrepreneurship Development
Volume 17, Issue 2
September 2024
Pages 157-187

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