A Spatial Analysis of Entrepreneurship and Institutional Quality: Evidence from U.S. Metropolitan Areas
Journal of Regional Analysis and Policy, 2015
52 Pages Posted: 14 Jan 2014 Last revised: 18 Sep 2015
Date Written: February 27, 2014
This paper uses the Stansel (2013) economic freedom index for a maximum of 375 U.S. metropolitan areas to estimate the effect of economic freedom on entrepreneurship while controlling for spatial dependence. This paper finds positive and statistically significant evidence that increases in economic freedom in one area result in increases in entrepreneurial activity in neighboring areas. Furthermore, the total (direct plus indirect) effects of an increase in economic freedom on entrepreneurship are positive and statistically significant, indicating that a positive-sum game is present. However, these effects are small in magnitude. In order to explain a cumulative one standard deviation increase in either one of the entrepreneurial measures presented in this paper, there would have to be an increase in the freedom index equivalent to moving from the least free area to the most free area.
Keywords: entrepreneurship, spillovers, institutional quality
JEL Classification: L260, O43
Suggested Citation: Suggested Citation