It is Not Just About The Law! A New Theoretical Framework of Informal Entrepreneurship Emergence

Given the transition toward increasingly formalized, market-driven, capitalistic economies, recent management and international business literatures have witnessed great theoretical advances relating the role of formal institutions shaping various forms of new ventures. New institutional frameworks account for a multiplicity of formal institutions, such as the role of governance quality, state fragility, intellectual property rights, and premarket reforms. Nevertheless, formal institutions do not act alone, and their interaction with informal institutions becomes critical to understand how informal new ventures emerge, especially in fragile countries. Through the analysis of 40 countries across 12 years, we build a new theoretical framework to explain how distinct institutional interactions between formal and informal institutions lead to informal entrepreneurship across countries. Based on these findings, we point to more culturally aware theory and policy approaches.