Technology use and availability in entrepreneurship: informal economy as moderator of institutions in emerging economies

This paper investigates the contextual influences of institutions on the use of latest available technologies by early stage entrepreneurs in emerging economies. Hypotheses are developed and then tested using multi-level modeling techniques on a dataset covering entrepreneurs in 20 emerging economies. We utilized 10,431 individual-level responses from the Global Entrepreneurship Monitor survey from 2002 to 2008 and complemented it with data on country-level institutions such as the size of a country’s informal economy, intellectual property rights (IPR) regimes obtained from the Index of Economic Freedom and inward foreign direct investment (FDI) from the World Bank Group. Results on the direct effects suggest that levels of FDI negatively influences the use of latest technology by entrepreneurs in emerging economies, while the moderation effects of informal economy suggest that as its size increases (1) the negative effects IPR on the use of latest technology by entrepreneurs strengthens, and (2) the negative effects of FDI on the use of latest technology strengthens. These findings support the overall proposition that the size of a country’s informal economy is an important moderator of institutional influences on technology use by entrepreneurs in emerging economies. More generally, the study proposes that institutions may not have the same effects on entrepreneurs in emerging economies that might be expected in developed countries, suggesting that future research should take the level of socio-economic development of a country into account when theorizing the role of institutions.