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To be successful, reform strategies must be informed by a sound understanding of the diversity of European capitalism and the institutional structures that drive these differences. A common reform approach is to identify a country that appears to be performing well in a particular institutional dimension and to promote this institution in other countries. This kind of best-practice-approach ignores the fact that each country has developed its unique bundle of institutions, which complement each other.
Reform strategies that ignore such institutional complementarities risk doing more harm than good. This challenge may explain, for example, why European imitation of policies aimed at stimulating venture capital has been unsuccessful e. Institutions are complementary if the presence or efficiency of one institution increases the returns from or efficiency of the other. Institutional complementarities imply that viable policy changes must be compatible with the existing institutional composition.
We know from the literature that there may be more than one institutional form that can result in good economic outcomes. Our study covers 21 European countries and includes the United States as a point of comparison because it is considered successful in terms of entrepreneurship. We include indicators on informal institutions norms and attitudes , political and economic institutions, labor market institutions and social protection systems, as well as the institutions that underpin knowledge and education.
In order to examine whether and how these institutions support each other various statistical techniques are employed, namely principal component analysis to produce a minimum number of uncorrelated and orthogonal principal components, and cluster analysis to identify how countries group along these dimensions. We find six different country clusters and each cluster has a distinct bundle of entrepreneurial and institutional attributes. Our results are in part consistent with previous typologies proposed in the literature, but with several important differences.
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