Multiple measures of US entrepreneurial activity and classical liberal institutions
| DOI | https://doi.org/10.1108/20452101311318648 |
| Published date | 19 April 2013 |
| Pages | 4-20 |
| Date | 19 April 2013 |
| Author | Noel Campbell,David T. Mitchell,Tammy M. Rogers |
| Subject Matter | Strategy |
EDITORIAL
Multiple measures of US
entrepreneurial activity and
classical liberal institutions
Noel Campbell, David T. Mitchell and Tammy M. Rogers
Department of Economics, Finance, Risk & Insurance Management,
The University of Central Arkansas, Conway, Arkansas, USA
Abstract
Purpose – The purpose of this paper is to provide a robustness check of the relationship between
entrepreneurial activity and economic freedom. As a deliberate “robustness check,” the authors
estimated various spatial measures of entrepreneurship found in the research literature, using the
same estimator within a consistent model that included political institutions, proxied by the Economic
Freedom of North America index. Like many exemplars in the literature, the authors’ focus was
on the US states.
Design/methodology/approach – The authors estimated models of five different measures of
entrepreneurial activity in a model based on Reynolds, Storey, and Westhead (1994).
Findings – The authors failed to replicate many of the results found in the literature. The various
measures of entrepreneurship were related to different independent variables. Economic freedom was
not a consistently significant predictor of entrepreneurial activity.
Research limitations/implications – The empirical work focuses on the US states, and may not be
generalizable. By deliberate choice, the authors did not include many of the independent variables,
data corrections, or estimation techniques found in the literature. The results imply the need for
additional development in the theory that relates institutions to entrepreneurial activity.
Originality/value – To the best of the authors’ knowledge, no one else has “raced,” side-by-side,
various entrepreneurship measures in a model that includes institutions.
Keywords Entrepreneurship measures, Institutions, Economic freedom, United States of America
Paper type Research paper
1. Introduction
After many years of empirical research several “stylized facts” (Kaldor, 1961) have
emerged from the entrepreneurship research literature. First, entrepreneur ship is a
vital ingredient of economic development, both internationally and intra-nationally.
Second, the type and amount of entrepreneurial activity depends on a society’s
“institutions” – the legal, political, and social rules of the game. Another suc h fact
deriving from a small stream of the literature is that the “rules” of a classical libera l
society promote pro-development entrepreneurship more than do the “r ules” of other
types of social organization (e.g. Sobel, 2008). Using the so-called economic freedom
indices (Gwartney and Lawson, 2003; Karabegovic et al., 2003) as measures of the
degree to which a society conforms to the classical liberal ideal, researchers have
typically found that greater “economic freedom” – measured by the indices – le ads to
more entrepreneurial activity (note that a larger literature typically finds that greater
economic freedom leads to wealthier societies; Doucouliagos and Ulubasoglu , 2006;
Sturm and de Haan, 2001). However, across papers in the economic freedom and
entrepreneurship literature, researchers use different measures of entrepreneurship,
institutions, in different models, with different estimators. If not apples to oranges,
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. 4-20
rEmeraldGroup PublishingLimited
2045-2101
DOI 10.1108/20452101311318648
4
JEPP
2,1
such studies compare Red Delicious apples to Granny Smith apples. This paper
compares Red Delicious to Red Delicious, using multiple measures of entrepreneurship
with multiple varieties of a measure of institutions, in a consistent modeling scheme.
On the one hand, the variety of empirical approaches provides a robustness
check. Unless there was something “real” to the relationship r unning from classical
liberal institutions through entrepreneurship to economic development, it seems very
unlikely to have such similar findings across such dissimilar empirical approaches.
This is one type of robustness check, which we refer to as an “informal robustness
check.” There are more formal types of robustness checks, too. One would be to
conduct meta-analysis on the relationship between institutions and entrepreneuri al
activity, such as Doucouliagos and Ulubasoglu (2006) performed on the mo re general
literature demonstrating that more economic freedom increases a society’s wealth.
Unfortunately, although there are numerous studies relating economic freedom to
entrepreneurial activity, there are not enough studies to conduct a meta-analysis.
Alternatively, as it is unclear that the different approaches within the research
literature are estimating the same relationship, one could estimate the different
proposed measures of entrepreneurship and institutions within a consistent
modeling framework.
In a book chapter scheduled to appear in The Impact of Public Polic y on
Entrepreneurial Outcomes, Vol. 2: Public Policy and Unproductive Entrepreneurship
(edited by Greg Randolph, Robert Salvino, and Michael Tasto), co-authors David
Mitchell, Tammy Rogers, and I estimated various entrepreneurship measures found in
the research literature, using the same estimator within a consistent mo del that
included political institutions. Like many exemplars in the literatu re, our focus was on
the US states. Focussing on regions within a nation is likely to sacrifice generalization,
but is also likely to confer several benefits. First, much of the literature on the
distribution of entrepreneurial activity focusses on sub-national regions (e.g. Reynolds
et al., 1994). Second, focussing on sub-national areas helps insure data compatibility
and avoid other problems of international comparison. Third, the USA is a federal
nation with many states, and the states are demonstrably not identical. The US states
offer datasets of wide variability and degrees of freedom.
Our measure of “institutions” is the Economic Freedom of North America (EFNA)
index (Karabegovic et al., 2003). Over time, many similar or complementary measures
for the US states have be en published. However, many of these measu res are not
available annually for as many years as the EFNA. Moreover, rightly or wrongly, these
other measures have not caught researchers’ atten tion and have not generated the
same volume of research as the EFNA.
2. Literature and discussion
Baumol (1990) points out that entrepreneurship may be productive, unproductive, or
destructive to society’s wealth. Entrepreneurship is also – and appears to always have
been – widespread in human societies. In terms of Baumol’s convenient “trichotomy”
of productive, unproductive, and destructive entrepreneurship, productive
entrepreneurship – the deliberate introduction of novelty and innovation into the
processes of production and exchange – is one of the main engines of real economic
output growth and income growth. Unproductive and destructive entrepreneurship
retards or reverses real economic growth.
Baumol’s (1990) key insight was that individuals will be more alert to and more
aggressively pursue productive, unproductive, or destructive entrepreneurial
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US
entrepreneurial
activity
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