The Plight of Underdeveloped Countries; Institutions and the Direction of Entrepreneurial Activity with Evidence from Romania

Conventional wisdom holds that a lack of entrepreneurial activity in languishing economies is responsible for their poor growth. This working paper points out that the cause of poverty in these countries is not the absence of entrepreneurial activity, but rather the way in which entrepreneurial activities are channeled. Entrepreneurial activities may be devoted to productive ends that create wealth, or unproductive/evasive ends that do not. Coyne and Leeson argue that institutional context determines not whether an economy will have entrepreneurial activity, but rather down which of these avenues omnipresent entrepreneurial activity is directed. The plight of Romania is used to illustrate this argument.