RELAXED BUSINESS REGULATIONS AS A PUSH FACTOR FOR THE ENTREPRENEURIAL ACTIVITY IN THE EUROPEAN UNION?

Since 2008 European Union countries have been enduring the effects of the most severe economic crisis experienced in 50 years. Consequently, since enterprises represent a principal component in creating a job-rich recovery, the European Commission, within the Europe 2020 Strategy and Entrepreneurship 2020 action plan, stressed the importance of entrepreneurial spirit in Europe. In that context, private sector development is recognized as a crucial determinant for long-term economic success. On the other side, countries` regulatory and administrative frameworks often hinder entrepreneurial initiatives. The main goal of this paper is to empirically analyse whether relaxing the constraints imposed by regulations increases the entrepreneurial activity in European Union countries. The special emphasis will be put on the effects of change in regulations on both opportunity-based and necessity-based entrepreneurship, using the GEM (Global Entrepreneurship Monitor) data. In this line of research, following the analysis of van Stel et al. (2007) and Stenholm, Acs and Wuebeker (2013), the paper will encompass the quality of entrepreneurship activity in countries, not only their number. In performing the analysis, a system GMM approach will be used for the 2001-2015 period. As an indicator of business regulation, we will use the Index of Business Freedom which is part of the Heritage Foundation Index of Economic Freedom that measures barriers faced by business sector from starting to closing the business, whereas the data for the quality of entrepreneurship will be obtained from the GEM database.