The effect of the public sphere on formal and informal institutions related to entrepreneurship

Abstract Institutions and their impact on entrepreneurial activity have been a topic of interest in recent decades for two main reasons. First, formal institutions create a legal, juridical, and political framework that supports entrepreneurs. Second, informal institutions motivate and incentivise entrepreneurs to act. However, institutions can also be seen as endogenous factors determined exogenously by a climate of opinion generated in the so-called public sphere. Nevertheless, the impact of the public sphere on entrepreneurship, i.e., the social and political influences of the public opinion created around entrepreneurship, has not been studied. Moreover, today's public sphere is generated mainly in a virtual environment where digital networks play an important role. Therefore, the main objective of this paper is to investigate the relationship between the public sphere and formal and informal institutions and the impact of these institutions on entrepreneurial activity. To that end, an empirical analysis is carried out at the level of 18 Organisation for Economic Co-operation and Development (OECD) countries via a second-generation statistical technique based on latent variables. The results show that the public sphere enhances entrepreneurial culture, especially through the effect of formal institutions on entrepreneurial education and the effect of entrepreneurial education on informal institutions. On the other hand, indirect effects confirm that the public sphere also promotes entrepreneurial activity and thus stimulates it. This study has several practical implications for policy-makers, entrepreneurs and managers with respect to the role of the public sphere.