Natural resource and entrepreneurship: Economic freedom matters

• Published in: Resources policy 2022-12, Vol.79, p.103114, Article 103114
• Main Authors: Awoa Awoa, Paul, Oyono, Jean Cedric, Ngah Atangana, Bénédicte, Okere Atanga, Donald, Zeh, Inès Perolde
• Format: Article
• Language: English
• Subjects: Economic Freedom; Entrepreneurship; Natural resource; Threshold effect
• ISSN: 0301-4207; 1873-7641
• DOI: 10.1016/j.resourpol.2022.103114

This paper sheds new light on the relationship between resource rents and entrepreneurship, conditional on economic freedom. In a sample of 101 countries, we demonstrate that resource rents encourage people to engage in counterproductive activities by lowering new business density when economic freedom is low. The findings hold up well to a variety of measures as well as forms of resource rents and economic freedom indicators. Additionally, in an effort to establish a threshold for economic freedom, a robustness test using the dynamic panel threshold approach shows that resource rents have asymmetric impacts on entrepreneurship both below and above a value of 7. Therefore, when economic freedom is low, resource rents enhance the incentive to choose rent-seeking activities (bribery, theft, and lobbying) over productive ones, leading to a diversion from the best use of resources and a lack of entrepreneurial spirit. •The effects of natural resources on entrepreneurship, conditional on the level of economic freedom is examined in a sample of 101 countries over 2006–2018 period.•Dependence on natural resources, even abundance reduces entrepreneurship, but increased economic freedom significantly reverses this negative effect.•When economic freedom is below the threshold of 7, resource rents increase the incentive to opt for rent-seeking activities, rather than productive activities, thus creating a deviation from optimal resource allocation and weak entrepreneurial dynamics.