The focus of this study is ‘hidden entrepreneurs’ who bridge formal and informal economies. While their business activities are legal, the governance and ownership structures of their organizations are illegal. This qualitative study draws upon institutional theory to illuminate the emergence of international hidden entrepreneurs in Oman as an unintended response to institutional configurations, and to examine its perceived effects on the domestic entrepreneurial ecosystem. Hidden practices, shaped by the dynamics of institutional environments, are perceived negatively by policy makers and domestic entrepreneurs, but offer potential contributions for entrepreneurial development. In-depth interviews with entrepreneurs and stakeholders reveal how hidden practices are shaped by the dynamics of regulatory and social institutions. Loopholes, or flawed institutional configurations, and prevailing sociocultural factors drive the emergence of hidden practices. The study contributes to informal entrepreneurship literature and policy making through highlighting the relevance of international entrepreneurs in enabling entrepreneurial ecosystem development.