Entrepreneurship and state economic growth

Abstract

PurposeThe purpose of this paper is to test whether entrepreneurship is a significant factor in explaining economic growth at the state level.Design/methodology/approachThis 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 role that entrepreneurial activity may have on state economic growth.FindingsWe 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/implicationsThese 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 implicationsSuch findings reinforce calls for policy changes at the state level that promote more productive entrepreneurship. This would include, among others, changes such as reducing or eliminating state income taxes and setting strict limits on the government's use of eminent domain and environmental property takings.Originality/valueThe 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.

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