The Role and Impact of Institutions on Entrepreneurship: Special Focus on Transition Economies – Russia and China Compared (original) (raw)

In the last five decades developmental aid programs have not been very successful. Partly because, the focus has been on macro approaches and policies, which did not emphasize the local institutional context faced by economic agents. In the last decade, however, the notion of institutions has come to the forefront of policy advice. At the same time, although institutions have gained importance in the sphere of policy making, the role of institutions in economic development still remains unclear. This paper, talks about how institutions are central to the increase of entrepreneurial activity, which is quintessential to development and economic growth. It also discusses how lacklustre economic performance, is not linked to lack of entrepreneurial drive as such, but the right institutional framework for entrepreneurship to operate in, and to be socially beneficial, and how the definition and enforcement of these rules is what affects economic/ entrepreneurial development. It further goes on to discuss, the role of institutions in entrepreneurship building in the case of transitional economies, with the example of Russia and China, by analyzing the institutions of private property, trust networks and Blat/Guanxi, that developed in the face of voids, created by the transition from their original institutions, to ones that mimic western society. It further examines, how their transition paths have differed, due to the different formulation of policies that have affected entrepreneurship in both countries. It also talks about, the clash between old and new institutions, and what determines the future of entrepreneurship in flux/transition economies. It analyzes, the functioning of socially productive, evasive, and socially destructive forms of entrepreneurship, and their relation to private property, in the context of transition economies, such as Russia and China. Lastly, and most importantly, this paper aims to establish, that policy making is inordinately benefited by the application of institutional theory (specifically in the context of entrepreneurship), especially in transition economies.