Entrepreneurship, Enterprise Start-up, and the Investment Climate in Rural Areas

This paper uses data from rural surveys in Nicaragua and Sri Lanka that are specially designed to measure the many facets of the investment climate and their effect on enterprise performance and entrepreneurship selection. In regard to entrepreneurship selection, in Nicaragua, household characteristics are more important than investment climate features; in Sri Lanka, both factors are roughly equally important. The model indicates no role for a latent community factor in Nicaragua, but in Sri Lanka the latent factor absorbs one third of the explanatory power of the community determinants. The paper also examines enterprise start-up. As entrepreneurship is only one of several possible options for a rural household, the same model is also estimated for farming, wage employment, and involvement in nonfarm activities broadly defined.