The impact of economic freedom and finance accessibility on new firm formation

• Název práce v češtině: Vliv ekonomické svobody a dostupnosti financování na vznik nových firem
• Název v anglickém jazyce: The impact of economic freedom and finance accessibility on new firm formation
• Klíčová slova: Ekonomická svoboda, dostupnost financování, podnikání, panelová data, System GMM
• Klíčová slova anglicky: Economic freedom, finance accessibility, entrepreneurship, panel data, System GMM
• Akademický rok vypsání: 2019/2020
• Typ práce: bakalářská práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: Mgr. Jan Mareš, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 17.07.2020
• Datum zadání: 18.07.2020
• Datum a čas obhajoby: 07.09.2021 09:00
• Místo konání obhajoby: Opletalova - Opletalova 26, O314, Opletalova - místn. č. 314
• Datum odevzdání elektronické podoby: 26.07.2021
• Datum proběhlé obhajoby: 07.09.2021
• Oponenti: doc. Bc. Jiří Novák, M.Sc., Ph.D.

Seznam odborné literatury

Campbell, Noel & Rogers, Tammy. (2007). Economic freedom and net business formation. Cato Journal. 27. Available online: https://www.researchgate.net/publication/242076444_Economic_freedom_and_net_business_formation

Bjørnskov, Christian & Foss, Nicolai. (2008). Economic Freedom and Entrepreneurial Activity: Some Cross-Country Evidence. Public Choice. 134. 307-328. 10.1007/s11127-007-9229-y. Available online: https://www.researchgate.net/publication/227213880_Economic_Freedom_and_Entrepreneurial_Activity_Some_Cross-Country_Evidence

Campbell, Noel & Rogers, Tammy & Heriot, Kirk. (2007). The Economic Freedom Index as a Determinant of Firm Births and Firm Deaths. Southwest Business and Economics Journal. 16. Available online: https://www.researchgate.net/publication/267831171_The_Economic_Freedom_Index_as_a_Determinant_of_Firm_Births_and_Firm_Deaths_The_Economic_Freedom_Index_as_a_Determinant_of_Firm_Births_and_Firm_Deaths

Brkić, Ivana & Gradojevic, Nikola & Ignjatijević. (2020). The Impact of Economic Freedom on Economic Growth? New European Dynamic Panel Evidence. Journal of Risk and Financial Management. 13. 26. 10.3390/jrfm13020026. Available online: https://www.researchgate.net/publication/339046754_The_Impact_of_Economic_Freedom_on_Economic_Growth_New_European_Dynamic_Panel_Evidence

Miller, Terry & Kim, Anthony B. & Roberts, James M. (2020). 2020 Index of Economic Freedom. The Heritage Foundation. Available online: https://www.heritage.org/index/about

Koster, Sierdjan & Karlsson, Charlie. (2009). New Firm Formation and Economic Development in a Globalizing Economy. Entrepreneurship and Regional Development, chapter 3. Edward Elgar Publishing. 10.4337/9781781000793.00008. Available online: https://econpapers.repec.org/bookchap/elgeechap/13156_5f3.htm

Carbonara, E., Santarelli, E. & Tran, H.T. De jure determinants of new firm formation: how the pillars of constitutions influence entrepreneurship. Small Bus Econ 47, 139–162 (2016). https://doi.org/10.1007/s11187-016-9715-z

Čihák, Martin & Sahay, Ratna. (2020). Finance and inequality. International Monetary Fund. Available online: https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2020/01/16/Finance-and-Inequality-45129

Sam Youl Lee, Richard Florida & Zoltan Acs (2004) Creativity and Entrepreneurship: A Regional Analysis of New Firm Formation, Regional Studies, 38:8, 879-891, DOI: 10.1080/0034340042000280910. Available online: https://doi.org/10.1080/0034340042000280910

Ho, Y., Wong, P. Financing, Regulatory Costs and Entrepreneurial Propensity. Small Bus Econ 28, 187–204 (2007). https://doi.org/10.1007/s11187-006-9015-0

Předběžná náplň práce v anglickém jazyce

Research question and motivation
The main purpose of this thesis is to reveal the effects of economic freedom and access to finance on new firm formation.

The number of firms in the market appears to be an important economic indicator. Presumably, the more firms operating on the market, the greater the competition which may lead to lower prices as well as goods and services of higher quality. Therefore, a connection between the quantity of new businesses and prosperity might be observed. This thesis is going to examine some of the factors that possibly affect this quantity.
The first chosen factor is economic freedom. Although it may seem as a rather subjective concept, there have been various attempts to measure it. In this thesis, the Index of Economic Freedom by The Heritage Foundation will be utilized. It was selected for its broad coverage of several different fields and a large database dating as far back as 1995. The main hypothesis is that the greater the freedom the higher the number of new firms, since future entrepreneurs face fewer restrictions. Higher levels of economic freedom are predicted to facilitate the establishment and operation of new businesses. This is consistent with the results of a study conducted by Campbell, Noel & Rogers, Tammy (2007) which was based on data from various states in the United States of America.
The second factor is finance accessibility. In this thesis, it will be represented by several characteristics of the financial system available in the World Bank’s global financial development database. Among those characteristics are the number of commercial bank branches per 100 000 adults, the percentage of loans requiring collateral, loan rejection rate, etc. The hypothesis states that, intuitively, more accessible finance should be associated with a higher number of new firms. This thesis aims to find the financial system’s characteristics with the greatest impact on new firm formation.

Contribution
Compared to similar studies relating economic freedom to new firm formation (Campbell, Noel & Rogers, Tammy (2007), Bjørnskov, Christian & Foss, Nicolai (2008)), this thesis is going to use world-wide data and thus intends to find conclusive evidence about the impact of economic freedom on new firm formation. According to the Index of Economic Freedom, economic freedom seems to be rising in the recent years so it might be crucial to reveal its impact on the economy. This thesis hopes to uncover its effects on new firm formation which might be deemed as a significant indicator of economic prosperity.
In addition, this thesis aims to unveil the relatively unexplored impact of access to finance on new business density.

Methodology
As an indicator of new firm formation, the new business density dataset from the World Bank will be used. It shows the number of new registrations per 1000 people aged between 15 and 64 years. It includes annual observations for 185 countries over 14 years. As stated above, economic freedom will be measured by the Index of Economic Freedom which consists of 12 separate categories and an overall score. It offers data for 186 countries over the course of 26 years. Lastly, the finance accessibility will be represented by the Global Financial Development Database available in the World Bank databank. It contains annual data for 109 financial system characteristics for 214 economies starting from the year 1960.
Since the data are available in several categories and various years, panel data analysis will be applied.
In order to try to avoid the problem with endogeneity, additional variables will be included in the model, for example economic growth.

Outline
Introduction
Theoretical background
Literature review
Data description
Empirical analysis
Conclusion