The Effect of Uncertainty on Entrepreneurial Activity

Although uncertainty is an important concept in entrepreneurship research, its impact on entrepreneurial activity has not been explored. We examine whether, and under what conditions, uncertainty affects entrepreneurial activity. Using data from 52 countries over 16 years, we find no evidence that uncertainty affects entrepreneurial activity. However, we find evidence that potential entrepreneurs start their businesses in uncertain circumstances if institutions are in place that reduce the cost of starting a business. These results suggest that it may not be external factors such as uncertainty that influence potential entrepreneurs’ decisions, but internal factors.