Abstract

Drawing from institutional theory, we examine macro-level drivers of countries’ incidence of informal investment activity. Informal investment should increase to the extent that countries demonstrate (1) greater availability of opportunities, (2) better regulatory protection of opportunities, and (3) higher levels of generalized trust. Furthermore, the level of generalized trust should play a moderating role, such that it amplifies the effect of the availability of opportunities and suppresses the influence of the protection of opportunities in predicting the incidence of informal investment activity. On the basis of data from different cross-national data sources—the Global Entrepreneurship Monitor, the Heritage Foundation, and the World Values Survey—we find support for these hypotheses. This study is among the first to explain cross-country differences in informal investment activities.

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