Economic Freedom, Entrepreneurship, & Income Levels: Some US State-Level Empirics

American Journal of Entrepreneurship, Forthcoming

25 Pages Posted: 23 Apr 2011 Last revised: 3 Nov 2013

See all articles by Travis Wiseman

Travis Wiseman

Mississippi State University - Department of Finance and Economics

Andrew T. Young

Texas Tech University - Rawls College of Business

Date Written: March 1, 2011

Abstract

Recent literatures on entrepreneurship and economic growth estimate the empirical relationships between the following pairs of variables: (1) institutions and entrepreneurial activity; (2) institutions and economic growth; and (3) entrepreneurship and economic growth.

This paper revisits each of these relationships using US state-level real GDP per capita, the Economic Freedom of North America index, and the state-level productive and unproductive entrepreneurship scores provided by Sobel (2008). We examine whether productive (unproductive) entrepreneurial activity is associated with higher (lower) levels or growth rates of income. Additionally, we aim to “connect the dots” by asking whether higher institutional quality (i.e., greater economic freedom) affects income primarily through its effects on entrepreneurial activity. We argue that, if this is true, economic freedom should be a good instrument for entrepreneurship in an income regression.

Keywords: productive entrepreneurship, unproductive entrepreneurship, rent-seeking, economic growth, US states

JEL Classification: O10, O18, O40, O51, R11, L26

Suggested Citation

Wiseman, Travis and Young, Andrew T., Economic Freedom, Entrepreneurship, & Income Levels: Some US State-Level Empirics (March 1, 2011). American Journal of Entrepreneurship, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1817846 or http://dx.doi.org/10.2139/ssrn.1817846

Travis Wiseman

Mississippi State University - Department of Finance and Economics ( email )

Mississippi State, MS 39762
United States

Andrew T. Young (Contact Author)

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

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