Institutional Approach to Entrepreneurship

The purpose of this article is to analyze and explain the relation between institutions and entrepreneurship, focusing on the entrepreneurship theorists’ viewpoints including Douglass North; According to the institutional approach, the environment that shapes the economy, affects on entrepreneurial dynamics within each country. Such an environment is characterized by interdependencies between institutions and economic development. Entrepreneurs, reacting to deep-rooted incentives of institutional framework, are the major determinants of change. Organizations reflect the opportunities created by the institutions concerned. Institutional transformation is the result of the interaction between organizations and institutions. The costs of contracts binding and market information studies affect institutional characteristics. The institutional characteristics, in turn, determine entrepreneurial activities. The findings of this research indicate that the institutional theory of Douglass North has influenced the entrepreneurial theorists’ institutional explanations; hence, the institutional approach to entrepreneurship has been recently extended to the entrepreneurship literature.