Freedom and entrepreneurship: a spatial econometric approach

While many studies find a positive relationship between economic freedom and entrepreneurship, very few of these studies account for possible spatial autocorrelation. Moreover, the development of an overall freedom measure has allowed researchers to test the relationship between overall freedom (personal plus economic) and entrepreneurship. The literature, however, does not account for spatial dependence in entrepreneurial activity. The purpose of this paper is to test for possible spatial dependence in entrepreneurial activity.

The authors employ a spatial autoregressive model to account for possible spatial dependence in entrepreneurial activity across states. The authors have data for entrepreneurial activity and overall freedom for a cross-section of data on the 48 contiguous US states for 2009.

The authors find no evidence of spatial dependence in entrepreneurial activity.

The authors are limited to a cross-section. Combined with the spatial lag of the dependent variable, the authors might have too few observations to find statistical significance on either the spatial lag or other explanatory variables.

Future research should continue to account for possible spatial dependence.

Entrepreneurship is key to economic growth. Freedom has been shown to lead to more entrepreneurship at the state level in other research.

This brief research note is the first paper to account for spatial dependence in the relationship between overall freedom and entrepreneurial activity.