The Influence of Institutional Factors on the Development of Small and Medium-Sized Innovative Entrepreneurship

Teimuraz Shengelia  Nino  Adamia

Journal number 2 ∘ Teimuraz Shengelia ∘ Nino Adamia ∘
The Influence of Institutional Factors on the Development of Small and Medium-Sized Innovative Entrepreneurship

doi.org/10.52340/eab.2026.18.02.01

journal N2.2026

Innovative entrepreneurship is one of the most dynamically developing sectors of the Georgian economy, driving the country\\\'s transition from a traditional resource-based model toward a knowledge-based economy. Its development is not a spontaneous phenomenon but rather the outcome of institutional evolution. In this regard, examining the institutional factors that shape innovative progress and conducting their fundamental analysis is essential for formulating effective state policy, underscoring the significance of this scientific inquiry.
The purpose of this research is to assess the impact of the institutional environment on the development of innovative entrepreneurship within Georgia’s small and medium sized enterprises. Amid intensifying global competition and the transformation of economic systems, analyzing the factors that foster or impede business innovation – where the institutional environment plays a pivotal role – assumes particular importance.
The article is structured into three interconnected parts. The first part provides a theoretical overview of the institutional environment, examining its core components and their influence on innovative entrepreneurship. The second part outlines the research methodology and formulates the testable hypotheses. Empirical data were collected through a questionnaire employing a 7 point Likert scale, with participation from 160 representatives of small and medium sized enterprises in Tbilisi.
The third part presents the empirical analysis, utilizing a regression model to evaluate the impact of various dimensions of the institutional environment on the innovative activity of enterprises. On this basis, the results of hypothesis testing are established. The concluding section discusses the findings, draws conclusions, and offers practical recommendations aimed at enhancing the institutional environment to support the innovative development of small and medium sized businesses in Georgia.

Keywords: Georgia, innovative entrepreneurship, institutional environment, impact, small and medium-sized business (SMEs), regression model.
JEL Codes: L26, O31, M13, O43

ლიტერატურა:

• შენგელია თ. (2017). ინოვაციური პროცესები ეკონომიკასა და ბიზნესში. თბ., „უნივერსალი“.
• შენგელია თ. (2025). ინოვაციური ბიზნესი საქართველოში: პრობლემები და პერსპექტივები. ახალი ეკონომისტი N1 (76) 2025.
• Aidis R., Estrin, S., & Mickiewicz T. (2008). Institutions and entrepreneurship development in Russia: A comparative perspective. Journal of business Venturing, 23(6), 656-672.
• Andersen B. (2006). Intellectual Property Rights: Innovation, Governance and the Institutional Environment, Northampton, Edward Elgar Publishing.
• Autio, E., & Fu, K. (2015). Economic and Political Institutions and Entry into Formal and Informal Entrepreneurship. Asia Pacific Journal of Management, 32, 67-94.
• Baumol W. J. (1996). Entrepreneurship: Productive, unproductive, and destructive. Journal of business venturing, 11(1), 3-22.
• Braunerhjelm P., Acs, Z. J., Audretsch D. B., & Carlsson B. (2010). The missing link: knowledge diffusion and entrepreneurship in endogenous growth. Small Business Economics, 34(2), 105-125.
• Busenitz L. W., Gomez C., & Spencer J. W. (2000). Country institutional profiles: Unlocking entrepreneurial phenomena. Academy of Management journal, 43(5), 994-1003.
• Nelson Richard R. & Nelson Katherine. (2002). Technology, institutions, and innovation systems. Research Policy, Elsevier, 31(2), 265-272.
• North D. C. (1989). Institutions and economic growth: a historical introduction. World Development, 17 (9), 1319-1332.
• Shengelia T. (2025). Innovative Research of Value-Motivational Features if Business Subjects. Interdisciplinary Science Conference Materials. Dublin, Ireland.
• Shengelia T., Berishvili Kh. (2018). Influence of Cultural Determinants on the Process of Business Innovations Management. Ecoforum Journal Vol 6, No 2 (2016) Impact Factor = 0.868. ISSN 2344 – 2174, Vol. 7, Issue 1, (14)
• Solow R. M. (1956). A contribution to the theory of economic growth. The quarterly journal of economics, 70(1), 65-94
• Stenholm P., Acs, Z. J., & Wuebker R. (2013). Exploring country-level institutional arrangements on the rate and type of entrepreneurial activity. Journal of Business Venturing 28(1), 176-193.
• Weitzman M. L. (1970). Soviet postwar economic growth and capital-labor substitution. The American Economic Review, 60(4), 676-692.

Economics and Business Referential and Reviewed International Scientific-Analytical Journal of Ivane Javakhishvili Tbilisi State University, Faculty of Economics and Business

ISSN 1987-5789 ESSN 2587-5426 doi 10.52340	Journal number 2 ∘ Teimuraz Shengelia ∘ Nino Adamia ∘ The Influence of Institutional Factors on the Development of Small and Medium-Sized Innovative Entrepreneurship doi.org/10.52340/eab.2026.18.02.01 journal N2.2026 Innovative entrepreneurship is one of the most dynamically developing sectors of the Georgian economy, driving the country\\\'s transition from a traditional resource-based model toward a knowledge-based economy. Its development is not a spontaneous phenomenon but rather the outcome of institutional evolution. In this regard, examining the institutional factors that shape innovative progress and conducting their fundamental analysis is essential for formulating effective state policy, underscoring the significance of this scientific inquiry. The purpose of this research is to assess the impact of the institutional environment on the development of innovative entrepreneurship within Georgia’s small and medium sized enterprises. Amid intensifying global competition and the transformation of economic systems, analyzing the factors that foster or impede business innovation – where the institutional environment plays a pivotal role – assumes particular importance. The article is structured into three interconnected parts. The first part provides a theoretical overview of the institutional environment, examining its core components and their influence on innovative entrepreneurship. The second part outlines the research methodology and formulates the testable hypotheses. Empirical data were collected through a questionnaire employing a 7 point Likert scale, with participation from 160 representatives of small and medium sized enterprises in Tbilisi. The third part presents the empirical analysis, utilizing a regression model to evaluate the impact of various dimensions of the institutional environment on the innovative activity of enterprises. On this basis, the results of hypothesis testing are established. The concluding section discusses the findings, draws conclusions, and offers practical recommendations aimed at enhancing the institutional environment to support the innovative development of small and medium sized businesses in Georgia. Keywords: Georgia, innovative entrepreneurship, institutional environment, impact, small and medium-sized business (SMEs), regression model. JEL Codes: L26, O31, M13, O43 ლიტერატურა: • შენგელია თ. (2017). ინოვაციური პროცესები ეკონომიკასა და ბიზნესში. თბ., „უნივერსალი“. • შენგელია თ. (2025). ინოვაციური ბიზნესი საქართველოში: პრობლემები და პერსპექტივები. ახალი ეკონომისტი N1 (76) 2025. • Aidis R., Estrin, S., & Mickiewicz T. (2008). Institutions and entrepreneurship development in Russia: A comparative perspective. Journal of business Venturing, 23(6), 656-672. • Andersen B. (2006). Intellectual Property Rights: Innovation, Governance and the Institutional Environment, Northampton, Edward Elgar Publishing. • Autio, E., & Fu, K. (2015). Economic and Political Institutions and Entry into Formal and Informal Entrepreneurship. Asia Pacific Journal of Management, 32, 67-94. • Baumol W. J. (1996). Entrepreneurship: Productive, unproductive, and destructive. Journal of business venturing, 11(1), 3-22. • Braunerhjelm P., Acs, Z. J., Audretsch D. B., & Carlsson B. (2010). The missing link: knowledge diffusion and entrepreneurship in endogenous growth. Small Business Economics, 34(2), 105-125. • Busenitz L. W., Gomez C., & Spencer J. W. (2000). Country institutional profiles: Unlocking entrepreneurial phenomena. Academy of Management journal, 43(5), 994-1003. • Nelson Richard R. & Nelson Katherine. (2002). Technology, institutions, and innovation systems. Research Policy, Elsevier, 31(2), 265-272. • North D. C. (1989). Institutions and economic growth: a historical introduction. World Development, 17 (9), 1319-1332. • Shengelia T. (2025). Innovative Research of Value-Motivational Features if Business Subjects. Interdisciplinary Science Conference Materials. Dublin, Ireland. • Shengelia T., Berishvili Kh. (2018). Influence of Cultural Determinants on the Process of Business Innovations Management. Ecoforum Journal Vol 6, No 2 (2016) Impact Factor = 0.868. ISSN 2344 – 2174, Vol. 7, Issue 1, (14) • Solow R. M. (1956). A contribution to the theory of economic growth. The quarterly journal of economics, 70(1), 65-94 • Stenholm P., Acs, Z. J., & Wuebker R. (2013). Exploring country-level institutional arrangements on the rate and type of entrepreneurial activity. Journal of Business Venturing 28(1), 176-193. • Weitzman M. L. (1970). Soviet postwar economic growth and capital-labor substitution. The American Economic Review, 60(4), 676-692.