Freedom, Barriers to Entry, Entrepreneurship, and Economic Progress
31 Pages Posted: 19 Mar 2016
Date Written: 2007
While entrepreneurs benefit from unrestricted free entry into markets, they have a time-inconsistent incentive to lobby for government entry restrictions once they become successful. Bad political institutions yield to these demands, and growing barriers are placed on domestic and international competition. Good institutions do not, and this effort is instead channeled toward further wealth creation. We find that productive entrepreneurship depends on both the freedom to succeed and discipline of failure that free markets provide. Trade barriers result in fewer combinations of goods and inputs attempted, and less productive entrepreneurial resource use. We also provide evidence on the value of business failure.
Keywords: Entrepreneurship, Creative destruction, Economic freedom, Barriers to entry
JEL Classification: H11, L26, F13
Suggested Citation: Suggested Citation