The Impact of Business Environment on Entrepreneurship: A Case Study of Selected Islamic Countries

Abstract

In recent decades, the role of entrepreneurship in fostering economic growth and sustainable development, particularly within Islamic countries, has gained increasing attention. Serving as the foundation for economic and entrepreneurial activities, the business environment enhances efficiency and factor productivity, ultimately leading to wealth creation, technological advancement, and productive job creation. Therefore, establishing a favorable business environment is a fundamental prerequisite for entrepreneurial development. Empirical evidence and reports from international institutions, such as the World Bank, demonstrate that the quality of the business environment exerts a direct influence on the expansion of entrepreneurial activities. Consequently, this study employs a panel data model to examine the impact of the business environment on entrepreneurship across four selected Islamic countries (Iran, Turkey, Malaysia, and Indonesia) over the period 2006–2020. The results indicate that the 'Ease of Doing Business Index' possesses a positive and significant coefficient. This implies that reducing administrative barriers, corruption, and legal complexities, alongside enhancing the ease of starting a business, leads to increased business ownership. Furthermore, the positive coefficient of this index suggests that improving the business environment enhances individuals' motivation and capacity to establish and register businesses. Moreover, control variables such as the unemployment rate and Gross Capital Formation (GCF) demonstrate significant effects on entrepreneurship. Specifically, an increase in unemployment correlates with a decline in entrepreneurial activities, whereas an increase in Gross Capital Formation exhibits a positive relationship with the growth of such activities, highlighting the crucial role of the macroeconomic environment in strengthening entrepreneurship.