Navigating entrepreneurship and innovation: The importance of institutional quality in CEE

Abstract

The research examines the impact of institutional quality on entrepreneurship and patenting activity in Central and Eastern European (CEE) countries, utilizing the Economic Freedom indicators from the Fraser Institute. We hypothesize that higher institutional quality, characterized by limited government intervention, an effective legal system and property rights, capital market and trade institutions, and regulatory framework positively influence entrepreneurial endeavors and patenting outcomes. Strong institutions facilitate access to resources, reduce bureaucratic barriers, and foster an environment conducive to innovative behavior. Employing a panel regression, the paper examines the relationship between various institutions and entrepreneurial and innovation performance in the CEE countries. The results reveal a significant positive correlation between higher levels of economic freedom and increased rates of entrepreneurship and the production of patents. However, the impact of institutional quality is greater in determining entrepreneurship than innovation activities. The findings underscore the importance of institutions in shaping economic development in the CEE region and highlight the need for policy reforms to enhance institutional frameworks to support entrepreneurship better and stimulate patenting activity. Overall, the research contributes to understanding how institutional quality affects economic outcomes, emphasizing the vital role of economic freedom as a driver of innovation and entrepreneurship