SOCIAL ENTREPRENEURSHIP AND ENVIRONMENTAL FACTORS: A CROSS-

COUNTRY COMPARISION

ABSTRACT:

Social entrepreneurship is a subject of growing interest for both academics and

governments. However, from the quantitative approach, little is known about the

environmental factors that affect this phenomenon. For this reason, the main purpose of

the present study is to statistically explore the relationship between environmental factors

and social entrepreneurship, as seen through a cross-country comparison and in the light

of institutional economics as the conceptual framework. Linear regression analysis is

used over a sample of 49 countries to study the impact of formal institutions (public

spending, access to finance and governance effectiveness) and informal institutions

(social needs, societal attitudes and education) on social entrepreneurial activity. The

main findings suggest that, while societal attitudes increase the rates of social

entrepreneurship, public spending has a negative relationship with this phenomenon.

Contributions of the research are both conceptual, in terms of development in the field of

social entrepreneurship from an institutional perspective, and practical, in terms of

designing policies to promote social enterprise creation.

Keywords: Social entrepreneurship, social entrepreneurial activity, environmental

factors, institutions, institutional economics.

INTRODUCTION:

Social Entrepreneurship (SE), as a new type of entrepreneurship, is emerging

around the world, based on a social wealth creation against the generation of economic

wealth as its main objective (Dees, 2001; Drayton, 2002; Leadbeater, 1997). There are

some researchers who note that social entrepreneurial activities affect economic growth,

reduce poverty and improve large-scale social development (Yunus & Weber, 2008;

Zahra, Gedajlovic, Neubaum, & Shulman, 2009).

SE is a new concept, but it is not a new phenomenon (Dees, 2001). Although the

term is relatively new, social entrepreneurs can be found throughout history1 such as

Florence Nightingale and Robert Owen, among others. In the literature, the concept of

SE was first used between the 1980s and 1990s (Waddock & Post, 1991; Young, 1983).

However, as a result of the intensity and complexity of social and environmental

problems, SE – defined as the employment of entrepreneurial skills through an innovative

process or activity that creates social, which can occur within or across non-profit,

government or business sectors – has become increasingly prominent.

Many researchers in this area recognise three decisive macro-dynamics in the

emergence of social entrepreneurial activities around the world. The first of these is the

slowdown of the public offering of products and social services, which has contributed to

an increase in unmet needs (Light, 2008). This is especially true for social welfare, with

regards to which public sector involvement is rather limited (Sharir & Lerner, 2006).

Second, the existing disequilibrium in the distribution of income level in both developing
and developed countries has increased the need for a new paradigm and new business

strategies (Bornstein, 2004). Over the past two decades, social entrepreneurs have also

increasingly employed business strategies to address problems and generate revenues.

Finally, the increased competition within the non-profit sector to achieve donations and

grants has led to the need to professionalise the activities undertaken with the objective

of reducing financial dependence, and thus ensure their economic stability for the

development of their social mission (Perrini, 2006). In this regard, and over the last couple

of decades, social movements and organisations led by Ashoka Foundation (Bill

Drayton), the Skoll Foundation (Jeff Skoll), and Schwab Foundation (Hilde and Klaus

Schwab) have begun promoting SE.

The increasing dynamism and vitality are observed in the search for new themes

and ideas concerning SE (Christie & Honig, 2006). The literature in SE has tended to

focus on renowned social entrepreneurs’ experiences, personal characteristics,

leadership and success factors. However, there is no solid evidence regarding one of the

interesting aspects of SE: the study of how the environment factors affect (promote or

inhibit) the emergence of social entrepreneurial activities (Urbano, Toledano, & Soriano,

2010). In this sense, an important number of both theoretical and case studies can be

found (Bacq & Janssen, 2011; Dhesi, 2010; Mair & Martí, 2009; McMullen, 2011; Sud,

VanSandt, & Baugous, 2009; Townsend & Hart, 2008; Weerawardena & Mort, 2006).

Despite this, most studies deal with the issue in a fragmented and excessively descriptive

way. This lack of empirical studies is putting limits on our understanding of social

entrepreneurial activities, so it is important to devote efforts in this direction.

 Taking into account the considerations noted earlier, the framework of institutional

economics (North, 1990, 2005) is adopted to analyse environmental factors that affect

SE. According to this framework, institutions include any form of constraint that human

beings devise to shape their interaction. In general terms, North (1990) distinguishes

between formal institutions, such as political and economic rules and contracts, and

informal institutions, such as codes of conduct, attitudes, values, and norms of behaviour.

In the case of social entrepreneurial activity, recent studies have pointed to a relation

between SE and institutions, where the institutional approach is considered an

appropriate theoretical framework for the analysis of the environmental factors that affect

the creation of new social enterprises (Nicholls, 2010; Mair & Martí 2006, 2009; McMullen,

2011; Townsend & Hart, 2008; Urbano et al., 2010). Nevertheless, there are very few

studies that make use of the institutional approach in the specific area of SE to research

the environmental factors that affect social entrepreneurial activities.

According to the above, and in order to overcome this lack of research, the main

purpose of the present study is to statistically explore the relationship between

environmental factors and social entrepreneurial activity, as seen through a cross-country

comparison and in the light of institutional economics (North 1990, 2005). The main

research questions of this study, then, are the following:

(a) What environmental factors significantly affect the creation of new social

enterprises, and how does this occur?

(b) What kind of institutional factors, formal or informal, have more influence in the

process of creating new social enterprises?

 With regard to the methodology, a quantitative approach will be used; specifically,

a linear regression analysis will be applied, considering 49 countries and data from

different databases such as Global Entrepreneurship Monitor (GEM), World Value Survey

(WVS), World Bank (WB) and International Monetary Fund (IMF)

Contributions of the research are both conceptual, in terms of development in the field of

SE from an institutional perspective, and practical, in terms of designing policies to

promote social enterprise creation. Further, the present work responds to the need for an

in-depth study across countries, and it represents an effort to systematize the institutional

factors that condition social entrepreneurial activity. Having a clear idea about the

institutional framework for social enterprise creation can help to guide public policies in

social enterprise creation.

Following this introduction, the research is organized as follows. Firstly, the

relevant literature is discussed and the hypotheses are stated. Secondly, the research

method and the main data used to test the hypotheses are elaborated upon. Next, the

results of regressions are presented and discussed; and finally, we conclude by

summarizing the implications of this study for the literature and discussing its limitations,

as well as ideas for future research.