Data and methods

This research uses quantitative methods to analyze the institutional factors in Saudi Arabia to find out the factors that influence entrepreneurial activity. Here is more explanation of the variables and methods that will be used to help achieve the aim of the study:

3.4.1 Dependent variable:

The dependent variable is gathered by the Global Entrepreneurship Monitor research project (GEM) in 2016. The GEM assesses the national level of entrepreneurial activity annually. The GEM project started as joint research between two universities, the London Business School in the United Kingdom and Babson College in the United States of America. It expanded to reach more than 100 countries.

The GEM Project aims to enhance the understanding of entrepreneurial activity by providing high-quality information and comprehensive reports. In this research, the dependent variable is a dummy variable, which is the total entrepreneurial activity (TEA). Moreover, TEA is the main factor of the GEM project, which indicates the individuals who are adults and in the process of starting a business that they will be one of the owners or already owning and managing an existed business that has been created in the past three years and a half. The GEM data were used in many studies to

analyze the entrepreneurial activity around the world, such as Urbano and Alvarez (2014), Wong et al. (2005), etc.

3.4.2 Independent variables:

Regarding the independent variables, two dimensions will be considered:

formal institutional variables and informal institutional variables. Regarding the formal variables, we will look at the level of education (Edu) of the participants. GEM collects this proxy and categorizes it into four levels. Regarding the informal variables, two variables will be used in this study, which are: fear of failure (FoF) and role models (RM). Both variables were obtained from the GEM report. FoF represents the fact if fear of failure would prevent the participant from starting a business. On the other hand, the role model indicates if the participants know someone personally who started a business in the last two years.

3.4.3 Control variables:

Even though this research follows an institutional approach, other studies indicated that other factors might also impact entrepreneurial activity. Some researchers suggested that sociodemographic factors are essential to clarifying entrepreneurial behavior (Alvarez & Urbano, 2014). As a result, we included the following individual-level control variables.

Age: Regarding the age, scholars such as Evans and Leighton (1989) and Levesque and Minniti (2006) have found out that there is an inverted U-shaped relationship between the age of the person and entrepreneurial activity (Alvarez &

Urbano, 2014). We include age as a control variable to test its impact. Participants were asked to state their age.

Gender: It has been found that females have less entrepreneurial involvement rates than men (Arenius & Minniti, 2005). Nevertheless, we include gender as a dummy control variable.

Income level: Evidence showed that income level also tends to impact the decision of becoming an entrepreneur where it is expected that individuals with high incomes are more likely to start a business (Aparicio et al., 2016). We included the income level as a variable with four categories.

Work Status: Evidence showed that work status impacts the decision to

become an entrepreneur. Blanchflower (2004), after a study on 30 countries, stated that work status, besides other variables, influences the decision to become an entrepreneur (Koellinger et al., 2013)

Table 3.1 includes a description of all the variables that were used in this chapter.

3.4.4 Data analysis and model:

The approach that will be used in this research would be the institutional approach, where we look at the formal institutional variables and informal institutional variables to analyze the Saudi entrepreneurial activity. The research equation will as follow

TEA = f (F, I)

Where TEA is the dependent variable, and "F" represents the formal independent variables and where "I" represents the informal independent variables.

Our dependent variable is a binary variable, and for that, we analyzed the data using a binary logit model where the dependent variable is 0 or 1. Moreover, the logit model is one of the binary regressions which indicate the relation between the independent variables (F and I) and the dependent variable (TEA), and it is the model that will be in this research.

Our data is taken from the GEM report 2016. The number of participants who answered our dependent variable question is 3816 participants (observations). The number of people who responded by "yes" when they had been asked if they are starting a new business or owning and managing a new startup is 404 participants. On the other hand, the number of people who answered "no" is 3412. The first thing we did after seeing the small number of people responding "yes" is that we tested if our data considered as rare event data to know what regression we could choose. We found out that the percentage of people answered "yes" is 10.5%, which makes the data above the line of being a rare event.

Variable Description and database Possible values

Dependent variables

Entrepreneur (TEA)

Dummy variable equal to 1 if the participant is starting a new business or owning and managing a new startup; equal to zero otherwise. Source:

Global Entrepreneurship Monitor (GEM) 2016

Participants were asked to state their highest education level that they have attained. They have been categorized into four levels. Source:

(GEM) 2016

Dummy variable equal to 1 if the participant agrees with the statement: "Fear of failure would prevent starting a business." And equal to 0 if he doesn't. Source: (GEM) 2016

1. Yes 0. No

Role Model (RM)

Dummy Variable that equal to 1 if the participant agrees with the statement: 'You know someone personally who started a business in the past 2 years". Equal to 0 if not. Source: (GEM)

1. Yes 0. No

Control variables

Age Participants were asked to state their age.

Source: (GEM) 2016 Income (Inc)

Participants were asked to place their income level into one of three categories. Source: (GEM) 2016

1. Lowest 33%tile 2. Middle 33%tile 3, Highest 33%tile Gender Participants were asked to state their gender.

Source: (GEM) 2016

1. Male 0. Female Work status

(WS)

Participants were asked to choose their work status out of three categories. Source: (GEM) 2016

Table 3.2 shows the mean, stander deviations and the correlation coefficients of the entire variables in this study. On the other hand, table 3.3 shows the logit regression model that was used to analyze the institutional variables and how they impact entrepreneurial activity. In table 2, the result is showing that most of the variables are highly correlated. Nevertheless, some of the variables showed small to no correlation, such as income or gender.

In addition, we applied the Pearson chi2 test to our categorical variables (Education and income). Pearson chi2 test tells if the distribution of the data is by