Geography, Institutions, and Entrepreneurship

The geographic spread of nations would pose logistics challenges in production, distribution and servicing, impacting costs, with implications for entrepreneurship. Using panel data from 62 countries spanning the years 2006 to 2021, we find that of the different oceanic geographic dimensions considered, the number of islands undermines entrepreneurship. Thus, the geographic scatter of a nation, in terms of the number of islands, does not foster entrepreneurship. The length of the coastline or being an island itself seem to not matter significantly in this regard. This main finding holds across different modeling variations. As expected, better institutional quality encourages entrepreneurship. The mediation analysis, to dissect the direct and indirect effects (through institutions) of geography reveals that the impact of the number of islands can work through institutional quality (as well as directly) to undermine entrepreneurship. Besides the considering of the number of islands, the spillovers of oceanic geography through institutions on entrepreneurship form the novel contributions of this work. However, the mediation analysis highlights a critical insight: geographic fragmentation, particularly in countries with numerous islands, weakens the positive impact of institutions. This is likely due to institutional fragmentation failing to align with geographic fragmentation. Some implications for policy are discussed.