Entrepreneurship Drives Economic Growth, and
Good Institutions Promote Entrepreneurship
"No matter how fertile the seeds of
entrepreneurship, they wither without the proper economic soil. In
order for entrepreneurship to germinate, take root, and yield the fruit
of economic progress it has to be nourished by the right mixture of
freedom and accountability, a mixture that can only be provided by a
free market economy."
-Lee, Dwight R. "The Seeds of Entrepreneurship." The Journal of
Private Enterprise, v7, n1 (Fall 1991): p. 20.
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Public Policy, Entrepreneurship, and Economic Growth
by Steven F. Kreft and Russell S. Sobel
Published: Cato Journal Vol. 25, No. 3 (Fall 2005), pp. 595-616.
Abstract: Recognizing that entrepreneurial activity is a key factor in economic growth, many local governments are enacting policies that promote entrepreneurship. One frequently cited strategy is to attract more venture capital to induce more entrepreneurial activity. In this paper we test the direction of causality between venture capital and entrepreneurial activity and find that the presence of entrepreneurs draws venture funding to an area, and not vice versa. We then show that more appropriate economic development policies are those that focus on creating a good environment for attracting or developing entrepreneurs, such as policies that improve the economic freedom of individuals.
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Note: this paper was used as the basis for a front page article in the Federal Reserve Bank of St. Louis monthly data publication, "National Economic Trends."
See the Fed's article here.
Entrepreneurship in Post-Socialist Economies
by Tomi Ovaska and Russell S. Sobel
Published: Journal of Private Enterprise Vol. 21, No. 1 (Fall 2005), pp. 8-28. [This article won the "Templeton Award” for the Best Article Published in the Journal for 2005].
Abstract: Following the disintegration of the Soviet Union in December 1991, the former Soviet republics and many other Eastern European nations began their transition from socialism to capitalism. Private sector entrepreneurship, an activity that had been illegal for decades, not only became legal but it also became essential for the creation of wealth and economic progress in these countries. In this paper we examine the rates of entrepreneurial activity in these post-socialist economies, and attempt to uncover the policies and institutions that appear to be the most highly correlated with a country's success (or failure) in promoting entrepreneurial activity.
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Does School Choice Increase the Rate of Youth Entrepreneurship?
by Russell S. Sobel and Kerry A. King
Published: Economics of Education Review 27, No. 4 (August 2008), pp. 429-438.
Abstract: Because entrepreneurial activity is a key source of economic growth, promoting youth entrepreneurship has become a priority for policymakers. School choice programs force administrators and teachers to be more entrepreneurial in their jobs by encouraging innovation and by creating competition and a more business-like environment in K-12 education. Does going to school in this climate make students more likely to become entrepreneurs? In this paper we test whether youth entrepreneurship rates are higher in school districts with school choice programs. We find that voucher programs create higher rates of youth entrepreneurship, while charter schools do not, relative to traditional public schools.
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Has Wal-Mart Buried Mom and Pop?: The Impact of Wal-Mart on Self Employment and Small Establishments in the United States
by Russell S. Sobel and Andrea M. Dean
Published: Economic Inquiry, forthcoming.
Abstract: One of the most emotionally charged issues surrounding the opening of a new Wal-Mart store is the negative impact it will have on small local businesses. Saving traditional ‘mom and pop’ stores has been a justification for political decisions preventing Wal-Mart from opening new stores. In this paper we present the first rigorous analysis examining how Wal-Mart impacts the rate of self-employment and number of small-employer establishments. Contrary to popular belief, our results suggest that the process of creative destruction unleashed by Wal-Mart has no statistically significant impact on the overall size of the small business sector in the United States.
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Freedom, Barriers to Entry, Entrepreneurship, and Economic Progress
by Russell S. Sobel, J.R. Clark, and Dwight R. Lee
Published: Review of Austrian Economics, 20 (2007), pp. 221-236.
Abstract: Institutions channel entrepreneurial effort in different directions. In economies with good institutions, this effort is devoted toward wealth creation. In politicized economies, effort is instead devoted toward securing protection from potential competitors. This paper examines the two part hypothesis that entrepreneurship depends heavily upon both the freedom to succeed and discipline of failure that market based economies provide. We find that more politicized economies do indeed erect both more internal and external barriers, and that the result is less entrepreneurship and slower economic growth. We also provide evidence of the valuable role played by markets in forcing entrepreneurial failures.
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Entrepreneurship
by Russell S. Sobel
Published: as “Entrepreneurship,” in David R. Henderson (ed), The Concise Encyclopedia of Economics, Indianapolis, Indiana: Liberty Fund, Inc., forthcoming.
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Testing Baumol: Institutional Quality and the Productivity of Entrepreneurship
by Russell S. Sobel
Published: Journal of Business Venturing 23, No. 6 (November 2008), pp. 641-655.
Abstract: Baumol’s (1990) theory of productive and unproductive entrepreneurship is a significant recent contribution to the economics of entrepreneurship literature. He hypothesizes that entrepreneurial individuals channel their effort in different directions depending on the quality of prevailing economic, political, and legal institutions. This institutional structure determines the relative reward to investing entrepreneurial energies into productive market activities versus unproductive political and legal activities (e.g., lobbying and lawsuits). Good institutions channel effort into productive entrepreneurship, sustaining higher rates of economic growth. I test and confirm Baumol’s theory, and discuss its significance to the literature and policy reform..
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Public Policy and Entrepreneurship
by Joshua C. Hall and Russell S. Sobel
Published: Kansas University Center for Applied Economics, Technical Report 06-0717, July 2006
Abstract: Entrepreneurship is a primary catalyst for economic growth and regional development. Recognizing its importance, state and local policymakers are now devoting considerable resources to fostering entrepreneurship. After a brief discussion of the data and theories of entrepreneurship, this paper presents a framework for thinking about government’s role in the entrepreneurial process. We then examine the research on macro-level determinants of entrepreneurial activity and find that policies broadly consistent with economic freedom, such as secure property rights, low taxes, and low regulations lead to a robust entrepreneurial environment.
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Institutions, Entrepreneurship, and Regional Differences in Economic Growth
by Joshua C. Hall and Russell S. Sobel
Published: Southern Journal of Entrepreneurship 1, No. 1 (March 2008), pp. 69-96.
Abstract: Baumol’s (1990) theory of productive and unproductive entrepreneurship is a significant recent contribution to the economics of entrepreneurship literature. He hypothesizes that entrepreneurial individuals channel their effort in different directions depending on the quality of prevailing economic, political, and legal institutions. This institutional structure determines the relative reward to investing entrepreneurial energies into productive market activities versus unproductive political and legal activities (e.g., lobbying and lawsuits). Good institutions channel effort into productive entrepreneurship, sustaining higher rates of economic growth. I test and confirm Baumol’s theory, and discuss its significance to the literature and policy reform..
Click here for the PDF version of the paper.