Productive versus unproductive entrepreneurship: Industry formation and state economic growth

The purpose of this paper is to examine the correlation between the degree of economic freedom in state institutions and industry employment and then determine how these correlations relate to economic growth.

The authors find the correlation between employment and economic freedom for each NAICS industry code and then calculate total employment in industries with positive correlation and negative correlations. The authors use these values in a GDP equation.

The authors find that employment growth in industries characterized by a negative correlation is associated with a decline in state per capita GDP. When the correlations between employment and economic freedom are positive, state per capita GDP tends to grow, even after accounting for overall economic freedom in the state.

Eliminating or reducing opportunities for firms to use government institutions to gain special treatment will lead to greater economic growth.

This paper allows the data to determine which industries potentially engage in productive and unproductive entrepreneurship.