Natural Disasters, Entrepreneurship Activity, and the Moderating Role of Country Governance

TL;DR

This study examines how country governance quality influences the impact of natural disasters on startup activity, revealing that good governance mitigates negative effects and can even promote entrepreneurship post-disaster.

Contribution

It demonstrates that country governance moderates the effect of natural disasters on startup activity, with high governance countries experiencing positive effects unlike low governance countries.

Findings

Natural disasters reduce startup activity in low governance countries.

High governance countries see increased startup activity after disasters.

Disaster effects on entrepreneurship are short-term, lasting 1-3 years.

Abstract

The purpose of this paper is to investigate if a country quality of governance moderates the effect of natural disasters on startup activity within that country. We test our hypotheses using a panel of 95 countries from 2006 to 2016. Our findings suggest that natural disasters discourage startup activity in countries that have low quality governance but encourage startup activity in countries that have high quality governance. Moreover, our estimates reveal that natural disasters effects on startup activity persist for the short term (1-3 years) but not the long term. Our findings provide new insights into how natural disasters affect entrepreneurship activity and highlight the importance of country governance during these events.