Entrepreneurship and state economic growth
| Date | 19 April 2013 |
| Published date | 19 April 2013 |
| Pages | 67-79 |
| DOI | https://doi.org/10.1108/20452101311318684 |
| Author | R.W. Hafer |
| Subject Matter | Strategy |
Entrepreneurship and state
economic growth
R.W. Hafer
Department of Economics, Southern Illinois University Edwardsville,
Edwardsville, Illinois, USA
Abstract
Purpose – The purpose of this paper is to test whether entrepreneurship is a significant factor in
explaining economic growth at the state level.
Design/methodology/approach – This paper, unlike previous work, uses the Kauffman Index of
Entrepreneurial Activity (KIEA) as the measure of entrepreneurial activity. Based on standard growth
regressions using real per capita gross state product, real per capita personal income and employment
growth,we test for the independent rolethat entrepreneurialactivity may haveon state economic growth.
Findings – We find that an increase in the level of entrepreneurial activity is robustly associated with
an increase in economic growth. Such findings reinforce calls for policy changes at the state level that
promote more productive entrepreneurship.
Research limitations/implications – These conclusions are tentative. The findings are based on
the growth of the 50 states over a relatively short period. A longer data set would be preferable, if data
were available. Moreover, the author has not attempted to distinguish between different categories of
entrepreneurship, for example productive and unproductive entrepreneurship.
Practical implications – Such findingsreinforcecalls for policy changesat the state level thatpromote
more productive entrepreneurship. This would include, among others, changes such as reducing or
eliminatingstate income taxes and setting strict limits on the government’s use of eminent domain and
environmental property takings.
Originality/value – The study uses the Kauffman Index of Entrepreneurial Activity (KIEA),
arguably a superior measure of state-level entrepreneurial activity, to explain state economic growth.
The topic is timely and the results have important policy implications.
Keywords United States of America, State, Economic growth, Entrepreneurialism,
Entrepreneurial action, Growth, Local policy, Sub-national government, Sub-national policy,
Entrepreneurship, Kauffman Index of Entrepreneurial Activity, Economic freedom
Paper type Research p aper
1. Introduction
The purpose of this paper is to test whether entrepreneurship is a significant factor in
explaining economic growth. This paper differs from much of the previous work in two
important ways. First, we focus on the economic growth-entrepreneurship at the state
level. The second difference is the measure of entrepreneurship used. Cross-country
studies of the growth-entrepreneur relation often rely on large survey-based data
sets, such as the Global Entrepreneurship Monitor Consortium (GEM). For subnational
analysis a common proxy for entrepreneurial activity is some me asure of net firm
formation[1]. In this paper we measure entrepreneurship using the Kauffman
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2045-2101.htm
Journal of Entrepreneurship and
Public Policy
Vol. 2 No.1, 2013
pp. 67-79
rEmeraldGroup Publishing Limited
2045-2101
DOI 10.1108/20452101311318684
JEL classification – O1, O47, H7
The author would like to thank Ari Belasen, Brad Hobbs, Randy Holcombe, Garett Jones, Tim
Schoenecker, Russ Sobel and two anonymous referees for helpful comments that greatly
improved the product. The author also thanks Ross Schmidt for his research assistance and
recognizes SIUE for its funding of this project through a STEP research grant. All errors are the
author’
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State economic
growth
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