Contractual, economic and political uncertainties: implications for entrepreneurship

This research compares the relative effectiveness of different uncertainties, including contractual, economic, and political uncertainty, on market entry in a sample of more than 100 countries. Whereas the bearing of various uncertainties on entrepreneurship has been previously studied, the consideration of contractual uncertainty and its comparisons with other uncertainties is novel. The theoretical roots of this work are grounded in the literature on entry-exit decisions under uncertainty, the role of sunk costs, capital durability, and incomplete/exclusive contracts. We find that greater contractual uncertainty discourages entry, while greater political stability encourages it. The effect of economic uncertainty on entry is statistically insignificant. Further, while the effect of the ease of entry on entrepreneurial entry is positive, it lacks statistical significance. The presence of knowledge workers promotes entrepreneurial entry. Finally, the level of economic prosperity fails to have a statistically significant impact on market entry. This insignificance is also true for market size and the intensity of local competition. These findings are robust to a battery of iterations, including considerations of nonlinearities and accounting for the presence of outliers. Thus, contractual uncertainty seems to matter more than economic uncertainty in the context of market entry, while political certainty has the expected result.