Abstract
This paper provides new evidence on the determinants of entrepreneurship across countries. The paper investigates the relationship between the institutional setting, in terms of economic freedom, and entrepreneurship, measured by self-employment, in a panel data setting covering 23 OECD countries for the period 1972–2002. The measure of economic freedom includes five aspects: size of government, legal structure and security of property rights, access to sound money, freedom to trade internationally, and the regulation of credit, labour and business. The empirical findings show that a smaller government sector, better legal structure and security of property rights, as well as less regulation of credit, labour and business tend to increase entrepreneurship.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Acemoglu, D., Johnson, S., & Robinson, J. (2001). The colonial origins of comparative development: An empirical investigation. American Economic Review, 9, 1369–1401.
Alfaro, L., & Charlton, A. (2006). International financial integration and entrepreneurship. CEP Discussion Paper No 755, Centre for Economic Performance, London School of Economics and Political Science.
Baltagi, B. H. (2001). Econometric analysis of panel data. New York: Wiley.
Baumol, W. J. (1990). Entrepreneurship: productive, unproductive and destructive. Journal of Political Economy, 98, 893–921.
Baumol, W. J. (2004). The free-market innovation machine: Analyzing the growth miracle of capitalism. Princeton: Princeton University Press.
Berggren, N. (1999). Economic freedom and equality: friends or foes? Public Choice, 100, 203–223.
Berggren, N. (2003). The benefits of economic freedom: A survey. The Independent Review, 8, 193–211.
Berggren, N., & Karlson, N. (2005). Äganderättens konsekvenser och grunder. [The Consequences and Foundations of Property Rights]. Stockholm: Ratio.
Blanchflower, D. G. (2000). Self-employment in OECD countries. Labour Economics, 7, 471–505.
Blau, D. (1987). A time series analysis of self-employment. Journal of Political Economy, 95, 445–467.
Bruce, D. J. (2000). The effects of United States tax systems on transition into self-employment. Labour Economics, 7, 545–574.
Bruce, D. J. (2002). Taxes and entrepreneurial endurance: Evidence from self-employed. National Tax Journal, 55, 5–24.
Bjørnskov, C., & Foss, N. J. (2008). Economic freedom and entrepreneurial activity: Some cross country evidence. Public Choice, 134, 307–328.
Carree, M. A. (2002). Does unemployment affect the number of establishments? A regional analysis of US states. Regional Studies, 36, 389–398.
Carter, J. R. (2007). An empirical note on economic freedom and income inequality. Public Choice, 130, 163–177.
Ciccone, A., & Papaioannou, E. (2006). Red tape and delayed entry. CEPR Discussion paper No. 5996, Centre for Economic Policy Research, London.
Clark, J. R., & Lee, D. R. (2006). Freedom, entrepreneurship and economic progress. Journal of Entrepreneurship, 15, 1–17.
Davidsson, P., & Henrekson, M. (2002). Determinants of the prevalence of start-ups and high-growth firms. Small Business Economics, 19, 81–104.
Desai, M., Gompers, P., & Lerner, J. (2003). Institutions, capital constraints and entrepreneurial firm dynamics: Evidence from Europe. NBER Working Paper no 10165.
Doucouliagos, C., & Ulubasoglu, M. A. (2006). Economic freedom and economic growth: Does specification make a difference? European Journal of Political Economy, 22, 60–81.
Evans, D. S., & Jovanovic, B. (1989). An estimated model of entrepreneurial choice under liquidity constraints. Journal of Political Economy, 97, 808–827.
Freytag, A., & Thurik, R. (2007). Entrepreneurship and its determinants in a cross country setting. Journal of Evolutionary Economics, 17, 117–131.
Glancey, K. S., & McQuaid, R. W. (2000). Entrepreneurial economics. New York: Palgrave.
Gwartney, J., Lawson, R., & Easterly, W. (2006). Economic freedom of the world: 2006 annual report. The Fraser Institute. www.freetheworld.com.
Hall, J. C., & Sobel, R. S. (2006). Public policy and entrepreneurship. Centre for Applied Economics Technical Report 06-0717, University of Kansas.
Hamilton, B. H. (2000). Does entrepreneurship pay? An empirical analysis of the returns to self-employment. Journal of Political Economy, 108, 604–631.
Henrekson, M. (2005). Entrepreneurship: A weak link in the welfare state. Industrial and Corporate Change, 14, 437–467.
Hoffmann, A. (2007). A rough guide to entrepreneurship policy. In D. B. Audretsch, I. Grilo, & R. A. Thurik (Eds.), Handbook of research on entrepreneurship policy (pp. 140–161). Cheltenham: Edward Elgar.
Kanniainen, V., & Vesala, T. (2005). Entrepreneurship and labour market institutions. Economic Modelling, 22, 828–847.
Klapper, L., Laeven, L., & Rajan, R. (2006). Entry regulation as a barrier to entrepreneurship. Journal of Financial Economics, 82, 591–629.
Kreft, S. F., & Sobel, R. S. (2005). Public policy, entrepreneurship, and economic growth. Cato Journal, 25, 595–616.
Lee, L. W. (1991). Entrepreneurship and regulation: Dynamics and political economy. Journal of Evolutionary Economics, 1, 219–235.
North, D. (1991). Institutions. Journal of Economic Perspectives, 5, 97–112.
North, D. (1994). Economic performance through time. American Economic Review, 84, 359–368.
Parker, S. C. (2004). The economics of self-employment and entrepreneurship. Cambridge: Cambridge University Press.
Reynolds, P. D., Storey, D. J., & Westhead, P. (1994). Cross-national comparisons of the variation in new firm formation. Regional Studies, 28, 443–456.
Reynolds, P. D., Hay, M., & Camp, S. M. (1999). Global entrepreneurship monitor. Kansas City: Kaufmann Center for Entrepreneurial Leadership.
Ricardo, D. (1821). Principles of political economy and taxation. London: John Murray.
Rodrik, D., Subramanian, A., & Trebbi, F. (2004). Institutions rule: The primacy of institutions over geography and integration in economic development. Journal of Economic Growth, 9, 131–165.
Scarpetta, S., Hemmings, P., Tressel, T., & Woo, J. (2002). The role of policy and institutions for productivity and firm dynamics: Evidence from micro and industry data. Working paper No 329, OECD Economics Department.
Schumpeter, J. A. (1934). The theory of economic development. Cambridge: Harvard University Press.
Schumpeter, J. A. (1942). Capitalism, socialism, and democracy. New York: Harper and Row.
Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations. Chicago: University of Chicago Press.
Sobel, R. S., Clark, J. R., & Lee, D. R. (2007). Freedom, barriers to entry, entrepreneurship and economic progress. The Austrian Review of Economics, 20, 221–236.
Storey, D. J. (1991). The birth of new firms - Does unemployment matter? A review of the evidence. Small Business Economics, 3, 167–178.
van Stel, A. J. (2005). COMPENDIA: Harmonising business ownership data across countries and over time. International Entrepreneurship and Management Journal, 1, 105–123.
van Stel, A., Storey, D. J., & Thurik, R. (2006). The effect of business regulation on nascent and young business entrepreneurship. ERIM Report Series Research in Management Rotterdam.
Wennekers, S., & Thurik, R. (1999). Linking entrepreneurship and economic growth. Small Business Economics, 13, 27–55.
Wennekers, S., Uhlander, L. M., & Thurik, R. (2002). Entrepreneurship and its conditions: a macro perspective. International Journal of Entrepreneurship Education, 1(1), 25–64.
Zacharakis, A. L., Bygrave, W. D., & Shepherd, D. A. (2000). Global entrepreneurship monitor: National entrepreneurship assessment: United States of America. Kansas City: Kaufmann Center for Entrepreneurial Leadership.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Nyström, K. The institutions of economic freedom and entrepreneurship: evidence from panel data. Public Choice 136, 269–282 (2008). https://doi.org/10.1007/s11127-008-9295-9
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11127-008-9295-9