Entrepreneurial growth aspirations in challenging environment: The role of institutional quality, human and social capital

• Published date: 01 July 2017
• DOI: http://doi.org/10.1002/jsc.2139
• Date: 01 July 2017

RESEARCH ARTICLE

Strategic Change. 2017;26(4):385–401. wileyonlinelibrary.com/journal/jsc © 2017 John Wiley & Sons, Ltd. 385

DOI: 10.1002/jsc.2139

Abstract

The role of formal and informal instuons is crucial in forming growth aspiraons. Firms use

their resources and personal network, trusng to overcome or compensate for inadequate in-

formal instuons. Transion countries can unlock their growth potenal by targeng entre-

preneurs with high growth aspiraon through policy measures (increasing their level of human

capital through a higher quality of educaonal system, aligning formal and informal instuons,

promong well‐funconing and imparal courts). Entrepreneurs use the informal instuons to

complement decient or inadequate formal instuons. Firm size as an indicator of beer access

to resources moderates posively the eects of informal instuon barriers by having a posive

inuence on growth aspiraon. Training, networking, and trust have a posive eect on growth

aspiraon and entrepreneurs use these pracces in response to instuonal deciencies (inad-

equate educaonal systems, inecient courts and other formal instuons). Policy iniaves

should consider small rms as being aected by formal instuons.

1 

|

 INTRODUCTION

A growing body of literature suggests that history and instuonal

context has a crical inuence on entrepreneurial acvity and growth

aspiraons (Aidis & Mickiewicz, 2006; Auo & Fu, 2013; Desai, 2011;

Estrin, Korosteleva, & Mickiewicz, 2013a; Welter & Smallbone, 2011;

Williams & Shahid, 2016). In transion economies (TEs), the highly

unusual instuonal and socioeconomic condions of early transion

(breakdown of the old rules and regulaons, disappearance of the com-

munist authority, high inaon, macroeconomic instability, etc.) led

to dierent entrepreneurial aspiraons as well as dierent entrepre-

neurial engagements compared with more mature market econom ies

(Earle & Sakova, 2000; Grilo & Thurik, 2006; Hashi & Krasniqi, 2011;

Smallbone & Welter, 2009). However, the central focus of entrepre-

neurship literature was largely on entrepreneurial entry, while there is

sll a gap in studying how dierent instuonal sengs aect entre-

preneurial growth aspiraons, with higher potenal for a contribuon

to the naonal economy (Estrin et al., 2013a). In parcular, there is

a need to shed more light on the incorporaon of the heterogeneity

of instuonal sengs and micro‐level characteriscs such as size of

rm and type, and the characteriscs of the entrepreneur such as role

of trust in explaining entrepreneurial behavior (Welter & Smallbone,

2011). There is a need to beer understand how these entrepreneurial

characteriscs, including personal trust and networking, act as a sub-

stute for deciencies in the formal instuonal framework in chal-

lenging business environments.

Therefore, the aim of this study is to reduce this gap in the lit-

erature by tesng a conceptual framework, which analyzes how a

variety of dierent formal and informal instuonal arrangements

aect the entrepreneurial growth aspiraons in the post‐conict

economy of Kosovo. This arcle focuses on the impact of instuonal

quality, human and social capital in a country that started to build

its instuonal framework from scratch aer a war. Although post‐

conict countries are fragile, they oer opportunies for research,

calling for parcular consideraon and interpretaon of context

(Collier, 2007). In parcular, Kosovo is a unique case—both a transi-

on and a post‐conict country—oen referred to in the literature as

an extreme environment for researching entrepreneurship or “natu-

rally experimenng” with tesng the theories of entrepreneurship

(Solymossy, 2005). TEs form an interesng context for the invesga-

on of instuonal quality, as in their inial phase of transion to

a market economy, instuons were absent and largely based on

emerging informal instuons.

Entrepreneurial growth aspiraons in challenging environment:

The role of instuonal quality, human and social capital*

Saranda Lajqi1

|

Besnik A. Krasniqi2

¹University of Tirana, Department of

Management, Albania

²University of Prishna, Prishna, Kosovo

Correspondence

Saranda Lajqi, The Instute for

Entrepreneurship and Small Business, 10000

Kosta Novakovic, Prishne, Republic of

Kosovo

Email: s.lajqi@iesb‐ks.org

* JEL classicaon codes: L26, O25, P2, P3.

LAJQI AND KRASNIQI

386

Drawing on the work of North (1990) and Williamson (2000) on

the new instuonal economics (NIEs), we develop an augmented

conceptual framework, which in addion to informal and formal ins-

tuons, includes the resource dimension as well as the role of human

and social capital. In addion to the instuonal context, which is of

paramount importance, the literature suggests that its relaonship to

the other aspects of entrepreneurship—such as the knowledge and

skills possessed by the people operang small rms—is important

(Veciana & Urbano, 2008). In parcular, the interplay between formal

and informal instuons, and how entrepreneurs react to instuonal

changes, is of parcular interest (Smallbone & Welter, 2012). Follow-

ing this literature, we adopt and augment the instuonal framework

for tesng the impact of instuonal quality on growth aspiraons

and specically control for the eect of the size moderator in formal

and informal instuons, controlling for social capital in the form of

business trust and networking.

The study is based on entrepreneurs’ responses generated

through three recent surveys conducted by the Business Support Cen-

ter Kosovo (BSCK) during 2011, 2012, and 2013. The results largely

support our hypothesis suggesng that under weak funconing of

formal instuons, informal instuons become more important—as

posited by North (1990). In addion, we found that the size of the rm

as a proxy for higher access to resources has a moderang eect in

relaon to the inuence of informal instuons on growth aspiraons

by migang formal instuonal barriers. At the same me, we show

that in the context of a weakly installed instuonal environment and

very poor law enforcement, social capital (personal trust and network-

ing) plays an important posive role for entrepreneurial growth aspira-

ons. This adds to the literature suggesng that in weakly installed

formal instuonal sengs, entrepreneurs make use of social capital

to respond to instuonal deciencies and lack of resources (Welter &

Smallbone, 2011).

This study contributes to the entrepreneurship literature in gen-

eral, and the transion literature in parcular, by lling an important

gap in exploring the eects of dierent dimensions of instuons on

growth aspiraons in a TE context. First, we adopt the NIE framework

by making a clear disncon between formal and informal instuons,

augmented with resource and market condion dimensions, and test

this framework in an unexplored country’s instuonal context—

Kosovo. The formal and informal instuonal dimensions are impor-

tant, because all other instuonal pillars inuence entrepreneurial

growth aspiraons in a dierent way. In parcular, we address some

of the deciencies of a few other studies in TEs by oering a mulfac-

eted instuonal perspecve and by controlling for the moderang

eect of size on instuonal dimensions. In line with this literature,

the study contributes by incorporang the role of personalized trust

and business networking in growth aspiraons while controlling for

the eect of other instuonal variables and the interacon eect of

the size of the rm. Finally, the study provides beer insights for pol-

icy‐makers and managers on factors that inuence growth aspiraons.

The remaining secons of this arcle are organized as follows. To

begin, we rst introduce the unique features of the context of entre-

preneurship development in Kosovo. Then, we discuss the theory and

develop the hypotheses. This is followed by an explanaon of the data

and method. The next secon presents the results of the determinants

of growth aspiraons in Kosovo, and a nal secon concludes.

2 

|

 RESEARCH CONTEXT:

ENTREPRENEURSHIP IN

POST‐CONFLICT KOSOVO

This arcle reports the results of a study that examined the role of

instuonal quality, human and social capital on entrepreneurial

growth aspiraons in the post‐conict and challenging environment of

Kosovo. Although, in terms of aempts to increase levels of entrepre-

neurial acvity, Kosovo shares similar features with other TEs found

elsewhere, its dierences in instuonal sengs, post‐conict envi-

ronment, and development path of the private sector makes it unique.

The transional path from centrally planned to market economy, inter-

rupted by conict, occupaon, and war (1998–1999), make Kosovo’s

economy interesng for the invesgaon of instuonal context.

Kosovo is amongst the poorest European countries, with a gross

domesc product (GDP) per capita of 2,800 euros generated from ser-

vices (56%), industry (18%), agriculture (17%), and construcon (10%)

(EU, 2014). Deindustrializaon, marked by the shrinking industry

share of GDP (from 47% in 1989 to 15% during the early stages of the

post‐conict period), inuenced heavy imbalances in macroeconomic

conguraon. The trade decit (reaching about 40% of GDP) and the

unemployment rate (above 30%) are key problems. In contrast, mac-

roeconomic and scal stability and low inaon persisted, along with

modest economic growth of 2–4%. Remiances (about 14% of GDP)

and donor contribuons, especially during the emergent reconstruc-

on phase, fueled the development of small and medium‐sized enter-

prises (SMEs) by generang high aggregate demand. In terms of the

instuonal environment, in the aermath of the war, Kosovo had to

start everything from scratch (Krasniqi, 2012b)—moving from a busi-

ness environment without any legislaon in place at all, to a country

which has progressed much in adopng its own legislaon with EU

laws. Although the legal framework is almost complete and in compli-

ance with EU standards, implementaon and weak rule of law remain

a severe problem for entrepreneurship development.

Recent surveys report that the unfair compeon, corrupon, and

rule of law hinder the general environment of doing business (BSCK,

2014). High corrupon pracces of public ocials and an inherited

tradion of a parallel system during the occupaon created special

forms of business pracce—doing business parally or fully informally.†

According to the most recent survey, the informal sector is esmated

to be around 35% (Riinvest, 2013). Under these circumstances, this

environment created incenves for emerging strong normave or

informal social instuons, which acted as a complement to formal

instuons or in some areas replaced them (Krasniqi & Mustafa,

† Note that during communism, the small‐rm sector was underdeveloped in

Montenegro, Macedonia, and the southern province of Kosovo, although in

Kosovo a very large ethnic Albanian‐based informal sector compensated for the

decit in formal (i.e., registered) small enterprises (Bateman, 2000).