Economic freedom, economic hardship and entrepreneurship: a cross-country analysis

Purpose This study examines the relationship between institutional and economic hardship factors in shaping entrepreneurship rates across countries. Specifically, it explores the impact of economic freedom as an institutional determinant and the Misery Index (sum of unemployment and inflation) as an indicator of economic hardship on business creation rates. The aim is to assess how these factors interact in fostering or constraining entrepreneurial activity. Design/methodology/approach A panel data analysis was conducted using data from 70 countries covering the period 2017–2023, resulting in 288 observations. An unbalanced panel data model was applied and fixed-effects and random-effects models were considered. The Hausman test indicated that the random-effects model was the appropriate specification for this dataset. The empirical approach allowed for a robust examination of the impact of economic freedom and the Misery Index on entrepreneurial activity. Findings The results reveal that an increase in the Misery Index negatively affects business creation, with a one-unit rise leading to a 2.3% decline in entrepreneurial activity (p = 0.0196). Conversely, economic freedom has a positive impact, as a one-point increase results in a 0.31% rise in entrepreneurial activity (p = 0.0079). However, the explanatory power of the model is limited (R2 = 16.39%), indicating that other contextual and individual-level factors significantly influence entrepreneurship rates. Originality/value This study contributes to the literature by providing empirical evidence about the interplay between economic freedom and economic hardship in shaping entrepreneurship rates. The study highlights the stronger negative impact of economic hardship relative to the positive effect of institutional quality. The findings underscore the need for further research on additional contextual and individual determinants of entrepreneurship, offering valuable insights for policymakers and stakeholders involved in fostering entrepreneurial ecosystems.