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The paper examines the relationship between conflict and entrepreneurial activity in Afghanistan, drawing upon a unique data set, the National Risk and Vulnerability Assessment household survey 2005. Afghanistan is severely underdeveloped and poor. Conflict has persisted in vast swathes of the country for decades, so that Afghanistan may be more appropriately described as an in-, rather than post-, conflict country. At the same time, qualitative (and anecdotal) evidence suggests that entrepreneurial activity is ubiquitous, although mainly due to survival strategies rather than a spirit of entrepreneurialism We empirically explore whether conflict affects the likelihood of a household to engage in entrepreneurial activity, proxied by sources of income coming from holding a small business. We control for the household characteristics and those of the environment, such as social capital, access to resources and infrastructure, as well as the presence of a minimal institutional governance system, to isolate the impact of conflict on household entrepreneurial behaviour. We find that the direct negative effect of the conflict on entrepreneurship is very small. The results on the control variables suggest that (i) the generation of entrepreneurship has seen conflict and instability for a whole life,( ii) a small business is a mean of surviving in a situation where any other support is lacking, (iii) it is a viable strategy when the household can cover some of the associated risks, (iv) there is no indirect effect of conflict via institutions and infrastructure, and (v) entrepreneurial activity may substitute for lacking markets and governance institutions. These results call for further and more in-depth research on Afghanistan as an overlooked area of study by the academic and development research community despite representing a priority for internationally supported reconstruction.

Development and growth are products of the interplay and interaction among heterogeneous actors operating in specific institutional settings. There is a much alluded-to, but under-investigated, link between economic growth, innovation systems, and institutions. There is widespread agreement among most economists on the positive reinforcing link between innovation and growth. However, the importance of institutions as catalysts in this link has not been adequately examined. The concept of innovation systems has the potential to fill this gap. But these studies have not conducted in-depth institutional analyses or focussed on institutional transformation processes, thereby failing to link growth theory to the substantive institutional tradition in economics. In this paper we draw attention to the main shortcomings of orthodox and heterodox growth theories, some of which have been addressed by the more descriptive literature on innovation systems. Critical overviews of the literatures on growth and innovation systems are used as a foundation to propose a new perspective on the role of institutions and a framework for conducting institutional analysis using a multi-dimensional typology of institutions. The framework is then applied to cases of Taiwan and South Korea to highlight the instrumental role played by institutions in facilitating and curtailing economic development and growth.