According to Douglas North, one of the most influential theorists of the institutional approach, institutions are the man-made rules of the game that structure political, economic, and social interactions (North, 1991). They can be either formal or informal (being the latter the kind of institutions North was most interested in). Formal institutions refer to written norms (such as financial infrastructure, laws, and contracts) that regulate human behavior, meanwhile informal institutions are conduct codes, traditions, manners, values, and similar informal shared agreements or behaviors that come from socially transmitted information and are a part of the heritage that people call culture (North, 1990, p. 37); thus, institutions frame human interaction (Bowen & De Clercq, 2008), resulting in particular change entities born due to the incentives and constraints in this frame (Baumol & Blinder, 2008; De Clercq et al., 2013).

Formal institutions can suddenly change overnight depending on legal or political decisions, but informal institutions are far more resistant and impenetrable (North, 1990). Although especially in the western world, formal institutions deliberately structure a great part of social and economic interactions in a society, these institutions are subordinate to informal ones in the sense that these are the cultural guidelines that shape formal institutions (Urbano et al., 2011; Whitley, 1994), providing the principles that indicate how actors should interact and with whom (Hechavarria & Reynolds, 2009). As noted by North (1990), informal institutions constitute a very important set of incentives and constraints that rule an individual’s daily behavior in different contexts, in a more obvious and immediate way than formal institutions (North, 1990, p. 53).

Institutional theory has two schools of thought: economic stemming (North, 1991), according to which the most critical driving forces that guide human behavior are rule systems and governance structures (Bruton et al., 2010), and a sociological one (DiMaggio & Powell, 1983), according to which the main driving force is the effort to achieve legitimacy and stability in uncertain situations and therefore, norms, values, and norms are the principal determinant of human behavior (Bruton et al., 2010).

Scott (2007) summarizes the institutional forces purposed by the main representatives from both stems in three institutional dimensions: The regulative pillar is related to the economic stem and its components come primarily from governmental legislation, industrial agreements, standards, and other written rules that provide the guidelines for the creation and development of new ventures. The normative pillar represents models of behavior and standards for business creation that define if a thought or action is proper and consistent with social norms. The cognitive pillar includes the mental schemas that influence individuals and are shaped by cultural environment and cognitive structures and processes related to how the information is represented, received, and utilized (Busenitz & Lau, 1996).

The papers considered in this review encompass both schools of thought, the economic one and the sociological one.

Álvarez et al. (2014) state that the field of Entrepreneurship has been categorized into four approaches: 1) the economic approach, which focused on the economic issues of venture creation, 2) the psychological approach, which focuses on the psychological traits of the entrepreneur; 3) the resource-based approach, focused on the organization’s resources and capabilities for exploring and exploiting entrepreneurial opportunities for achieving a competitive advantage, and 4) the institutional approach, which argues that the socio-cultural environment is the main determinant of the business creation and development.

Institutional theory has been used recently as a framework for studying entrepreneurship, having into account that institutions can act as a determinant of the structure of opportunities, incentives, constraints, and limitations detected by entrepreneurs and therefore, of the entrepreneurial decisions in the processes of gestation of a new business idea and its implementation (Urbano et al., 2011). The papers considered in this review belong to the institutional approach.

The research on entrepreneurship in Latin America has provided valuable insights into the entrepreneurial reality of various countries that hold a prominent position in studies on the subject. These countries serve as interesting cases for understanding entrepreneurial dynamics in the region and their relationship with institutional factors.

In the case of Chile, it has been ranked highly in the entrepreneurship quality index in Latin America. Amorós & Abarca (2015) and Leporati et al. (2020) highlight Chile’s position in this index. Additionally, Silva et al. (2021) emphasize the importance of university-industry collaboration as a key factor in fostering entrepreneurship in the country.

Mexico also stands out as one of the leading countries in entrepreneurship in the region. According to the Global Entrepreneurship Monitor (GEM) Report 2020/2021, Mexico exhibits a strong entrepreneurial activity (Bosma et al., 2021). Furthermore, a study by González & Rivera (2017) emphasizes that entrepreneurial education and business training are essential in promoting an entrepreneurial mindset in this country.

Colombia has made significant improvements in its business environment and has achieved progress in facilitating entrepreneurship. A report by the World Bank (2020) indicates that Colombia has improved its ease of doing business. Moreover, a study by Higuera et al. (2019) underscores the importance of entrepreneurial culture and education in fostering entrepreneurship in the country.

In turn, Brazil stands out as one of the most entrepreneurial countries in Latin America. The GEM Report 2020/2021 highlights Brazil’s dynamic entrepreneurship. Additionally, a study by Inácio et al. (2016) emphasizes the crucial role of government policies and public-private partnerships in fostering entrepreneurship in the country.

Argentina has also developed a notable entrepreneurial ecosystem. According to a report by the World Economic Forum (2020), Argentina exhibits a solid entrepreneurial ecosystem with great potential for economic growth. Dürr & Sili (2022) point out that entrepreneurial culture and access to financing are key factors for entrepreneurship development in the country.

These studies highlight the importance and recognition of these countries in the field of entrepreneurship in Latin America. Their efforts in government policies, entrepreneurial education, and fostering an entrepreneurial culture have contributed to creating favorable environments for the development of new businesses and economic growth.

The journals that have published the most articles about the research field of entrepreneurship from the perspective of institutional theory in Latin America are Small Business Economics, with six documents, Entrepreneurship, and Regional Development, with five articles, the Journal of Business Venturing, with four documents and the International Journal of Entrepreneurial Behavior, with three articles (Figure 1).

Figure 1 Source: Own elaboration

In Latin America, institutional theory-based entrepreneurship research predominantly employs quantitative methods (54% of articles) to identify relationships and explain entrepreneurship. Qualitative research accounts for 38% of articles, using interviews and case studies to explore the richness of the field. Few literature review and mixed-methods articles were found (Table 2).

Table 2 Source: Own elaboration

The most used theoretical framework in entrepreneurship and institutions research is the institutional theory, specifically its economic stem (Table 3). Formal and informal institutions have been also studied from other conceptual frameworks, mainly the Resource-based view and entrepreneurship ecosystems. Thus, North’s vision of institutions is the most used lens to analyze the influence of formal and informal institutions on entrepreneurial activity.

Many of the papers do not explicitly express the stem of the institutional theory they are using (the economic perspective or the sociological angle). Only Peng et al. (2010) and Urbano et al. (2011) specify the school of thought from which the study stands from.

Table 3 Source: Own elaboration

Based on Scott’s institutional dimensions, the normative pillar, particularly social networks, has been extensively studied in Latin America. Social networks, such as voluntary associations, are believed to reduce regulatory and normative pressures and potentially serve as substitutes (De Clercq et al., 2010). Cultural barriers to female entrepreneurship and its consequences are also a relevant topic through the years (Arráiz, 2018; Bardasi et al., 2011), such as contested contexts characterized by the negative perception of the figure of the entrepreneur in society and the emergence of criminal illegitimate institutions (Sutter et al., 2013; Winterstorm et al., 2020) and the positive and negative effects of legitimacy (Wood et al., 2011; Kistruck et al., 2015). The second most studied pillar is the regulative one. Financial institutions are the most significant institution (Amorós et al., 2013; Bernat et al., 2017; De Clercq et al., 2013; Kistruck et al., 2015; Peng et al., 2010). There is an important gap in studying the cognitive pillar. Only three articles of the sample explore this dimension, and they do in an implicit way. The institutional determinants of entrepreneurship in Latin America resulting from the semi-systematic literature review are shown in Table 4.

Table 4 Source: Own elaboration.

As noted by North (1990), formal and informal institutions can both act to either boost or constrain entrepreneurship, either alone or in combination. Furthermore, according to De Soto (2003), the fragmented development of institutions is not enough for encouraging risk-taking and venture creation. Conversely, it is necessary to accomplish an overall development of the institutions for stimulating entrepreneurship.

The semi-systematic literature review reveals a reciprocal relationship between formal and informal institutions. Formal institutions in Latin America are influenced by and also influence informal institutions. For example, friendly bankruptcy laws impact not only regulatory aspects but also normative and cognitive dimensions, such as reducing social stigma (Peng et al., 2010). On the other hand, informal institutions’ dynamism can affect or transform formal institutions: i.e. re-entrepreneurs are more willing to assume a role as angel investors than first-time entrepreneurs (Espinoza-Benavides & Díaz, 2019).

The differential effects of formal and informal institutions on peripheral and central areas have been studied by Amorós et al. (2013), finding that entrepreneurship experts situated in the periphery perceive their regions as being in a worse position than centrally located experts in terms of access to finance and physical infrastructure. The researchers also discovered greater dynamism in the periphery regions due to the regional policy focus of the Chilean government. They found that formal institutions such as universities have a key effect on regional business creation through informal institutions, specifically social engagement (Espinoza et al., 2019). A similar effect was found in rural environments, where social fabric and cultural locale are key drivers for entrepreneurship (Muñoz & Kimmitt, 2019). Likewise, two dimensions, one informal and one formal, for responding to natural disasters in Latin America were found: the emergence of new community groups and the arrangement of new institutions (Muñoz et al., 2019).

In Latin America, semi-formal illegitimate institutions are prevalent. These institutions consist of coercively enforced rules and norms that deviate from broader societal values. Examples include gangs exerting power and control over economic activities, and even imposing taxes in their territories. These institutions have been studied by Sutter et al. (2013), who found that entrepreneurs respond to such institutions by defying, avoiding, and acquiescing through actions such as hiring private security, controlling physical space, altering business models, and responding to the demands of illegitimate actors.

Legitimacy can have both positive and negative effects in these environments, resulting in increased resource provision from strong institutions but also resource appropriation by illegitimate institutions (Kistruck et al., 2015).

Entrepreneurial families are another notable group with specific characteristics in Latin America, where it has been found that institutional challenges are the key variable that shapes the priorities and objectives within the family (Estrada-Robles et al., 2020).

Informal entrepreneurship is also a very common figure in the Latin American context. Sutter et al. (2017) studied the transition of entrepreneurs from informal to formal markets, examining the role of institutions in this process. They defined the institutional scaffolding as a collection of new norms, practices, relationships, positions, and systems designed to support entrepreneurs in their transition to a new institutional context of formalization. This support is achieved through various targeted strategies aimed at both individuals and networks, with the goal of assisting small entrepreneurs.

Finally, as informal institutions, cultural frames have been studied in contexts where entrepreneurship is considered culturally inappropriate in Latin America, founding that entrepreneurs can react to the employment, market, social responsibility, and fame frames by adopting the ideals of the dominating frame in their context or defying rebuilding their acceptance to justify their vocational choices (Winterstorm et al., 2020). In these and other adverse contexts, entrepreneurial self-efficacy is less important than resilience in the formation of the intent to start a business (Renko et al., 2021).

Results support North's perspective on the importance of adhering to regulatory prescriptions in Latin America, highlighting the role of strong and friendly formal institutions. Additionally, informal constraints shape and influence formal institutions, underscoring their intrinsic value and cultural legacy.

Transnational entrepreneurs are characterized by commercializing a business idea across multiple institutional settings (Patel & Conklin, 2009). Formal and informal institutional settings differ from one environment to other. Thus, bifocality could be defined as the ability to adapt to different institutional settings across borders [e. g. through social networks] (Patel & Conklin, 2009). In the context of transnational Latin American entrepreneurs, bifocality is crucial from the institutional theory, given that it could contribute to reducing transaction costs associated with the operation in a foreign environment. Urbano et al. (2011) studied the primary socio-cultural factors that influence the emergence and development of transnational entrepreneurship among Ecuadorian entrepreneurs in Catalonia. They found that role models and entrepreneurial attitudes play a significant role in the emergence of transnational entrepreneurship, while social networks and opportunities within the entrepreneurial culture impact the development of transnational entrepreneurship. Similarly, Arroteia & Hafeez (2020) found that social networks impacted the development of capabilities to exploit the domestic market entry in the multilateral context.

Many new ventures from Latin America aiming to internationalize face additional challenges related to foreignness due to their globally perceived low reputation (Mathews, 2006). In this context, strategic early internationalization with clear strategic commitment helps these new ventures to acquire legitimacy as a determinant of their international sales intensity (Wood et al., 2011).

An entrepreneur's perception of environmental conditions can shape the speed of venture creation and subsequent growth of the new firm. Capelleras et al. (2010) found that concerns about the macro economy and the provision of infrastructure can slow down venture creation, while formal or legalistic obstacles in the venture creation process, such as taxes and regulations, have no impact on the speed of venture creation. Similarly, the entrepreneur's personal networks play a crucial role in expediting venture creation as they assist in acquiring resources for the business more quickly. Furthermore, Puente et al. (2017) discovered that specific institutional conditions of a base-of-the-pyramid market serve as the primary determinant of an entrepreneur’s growth aspirations in Venezuela.

Despite the advances made in reducing the gender gap, particularly in developed countries, formal and informal institutional factors can still act as barriers to female entrepreneurship, particularly in the context of Latin America. Women commonly face barriers related to discrimination when seeking financing for their businesses (Chowdhury et al., 2018). It has been found that female entrepreneurs in Latin America are more likely than their male counterparts to apply for a loan if they need one. However, the collateral costs of credit are higher for women compared to men, resulting in a larger performance gender gap. Female-owned firms tend to perform worse in terms of firm growth compared to male-owned firms (Bardasi et al., 2011). Similar results were found by Arráiz (2018), who additionally highlighted that in the absence of institutional support, the gender gap tends to be larger.

The results of this research stream are consistent with North’s Statements, as he argues that new business adapts their activities and strategies to the opportunities and constraints defined by the institutional environment. Similarly, institutions are an important driver for overcoming challenges that explain the growth aspirations of necessity entrepreneurs, which education, competence, and business sophistication allow them to think about growing despite being initially necessity-driven, demonstrating that context factors determine the entrepreneur´s aspirations independently of their motivations (Puente et al., 2019).

Figure 2 illustrates relationships between institutions and entrepreneurship research in Latin America, with a focus on formal and informal institutions as independent variables. However, there is limited research on the potential mediation or moderation effects of these relationships, with only a few articles exploring moderators and one examining mediation.

Figure 2 Source: Own elaboration.