How Institutions in Emerging Economies Shape the Role of Social Networks in New Business Creation

What is it about?

This study examines how institutional conditions influence the relationship between social networks and entrepreneurial start-up activity in emerging economies. Grounded in institutional theory, it proposes that entrepreneurs depend on networks of family, friends, and professional contacts to access resources, information, and legitimacy—especially when institutions are weak. The model distinguishes among regulatory, normative, and cognitive dimensions, each reflecting how rules, social norms, and shared knowledge affect entrepreneurship across national contexts. Using data from several emerging economies, the study shows that social networks’ impact on new business activity depends on institutional quality. Networks play a stronger positive role when regulations are burdensome and cultural support for entrepreneurship is low, as informal ties help overcome formal barriers. However, when shared knowledge and education about entrepreneurship are high, networks become even more effective, enabling entrepreneurs to better use their contacts to transform ideas into ventures. These results suggest that building entrepreneurship-friendly environments in emerging economies requires both institutional strengthening and network development. Policymakers should improve the regulatory and cultural climate while encouraging associational life and knowledge exchange that enhance entrepreneurs’ ability to use networks productively. The study thus demonstrates that social networks and institutions act not in isolation but in complex, complementary ways to shape entrepreneurial growth.

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Photo by Alex Gallegos on Unsplash

Photo by Alex Gallegos on Unsplash

Why is it important?

This study is unique in showing that the impact of social networks on entrepreneurial start-up activity varies across institutional dimensions—being amplified under weak regulatory and normative conditions but strengthened, rather than weakened, by higher cognitive development. This nuanced evidence revises the common assumption that networks always compensate for institutional voids, revealing instead that shared entrepreneurial understanding enhances the value of social ties. It is timely as many emerging economies face the challenge of fostering entrepreneurship while institutions evolve unevenly. The findings guide policymakers to promote not only legal and normative reforms but also entrepreneurial education, training, and knowledge diffusion that make social networks more productive. By bridging formal and informal mechanisms, emerging economies can accelerate venture creation and economic dynamism in the face of structural constraints.