The Role of Access to Finance in Explaining Cross-National Variation in Entrepreneurial Activity: A Panel Data Approach

The aim of the paper is to investigate to what extent access to finance explains differences in entrepreneurial activity across European Union (EU) member countries. We use a dataset containing information across countries and time to investigate the determinants of entrepreneurial activity in twenty-five EU members over the period between 2007 and 2013. Our sample comprises both periods of difficult access to finance and periods of excessive liquidities. Employing a panel data model with fixed effects, we found a positive relationship between access to finance and entrepreneurial activities. Furthermore, we showed that this positive relationship is more important for the individuals who believe they have the required skills and knowledge to start a business. The results proved to be robust when we employed different measures of entrepreneurial activity and several proxies for access to finance. Our findings provide empirical evidence for the need of policy initiatives at national and EU level to facilitate the creation of sustainable new ventures.