Reform strategies that ignore such institutional complementarities risk doing more harm than good.This challenge may explain, for example, why European imitation of policies aimed at stimulating venture capital has been unsuccessful (e.g., European Commission 2013).[i] Institutions are complementary if the presence or efficiency of one institution increases the returns from or efficiency of the other.This implies that one-size-fits-all reform strategies are likely to fail.Member countries in different clusters must instead follow various reform strategies on how best to promote entrepreneurship and economic growth.By Selin Dilli (UU) and Niklas Elert (IFN): Europe’s economic problems have led many policymakers to recognize that institutional reforms to foster entrepreneurship and economic growth are needed in the 28 member countries of the European Union.To be successful, reform strategies must be informed by a sound understanding of the diversity of European capitalism and the institutional structures that drive these differences.
We analyze countries’ entrepreneurial climate, and institutions relevant to this climate, based on data from 2000 onwards.Institutional complementarities imply that viable policy changes must be compatible with the existing institutional composition.We know from the literature that there may be more than one institutional form that can result in good economic outcomes.A first cluster consists of the US, UK, and Ireland.These countries combine good legal systems with an emphasis on small government, prioritize investment funds, have low pension replacement rates, high governmental expenditure on education and moderate school enrollment, and value individualism, long-term orientations, and masculinity.
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We find six different country clusters and each cluster has a distinct bundle of entrepreneurial and institutional attributes.