Public Choice

, Volume 134, Issue 3–4, pp 307–328 | Cite as

Economic freedom and entrepreneurial activity: Some cross-country evidence

  • Christian BjørnskovEmail author
  • Nicolai J. Foss


While much attention has been devoted to analyzing how the institutional framework and entrepreneurship impact growth, how economic policy and institutional design affect entrepreneurship appears to be much less analyzed. We try to explain cross-country differences in the level of entrepreneurship by differences in economic policy and institutional design. Specifically, we use the Economic Freedom Index from the Fraser Institute to ask which elements of economic policy making and the institutional framework are conducive to the supply of entrepreneurship, measured by data on entrepreneurship from the Global Entrepreneurship Monitor. We find that the size of government is negatively correlated and sound money is positively correlated with entrepreneurial activity. Other measures of economic freedom are not significantly correlated with entrepreneurship.


Economic freedom Entrepreneurship Cross-country variation 


M13 O31 O50 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction. Econometrica, 60, 323–351. CrossRefGoogle Scholar
  2. Audretsch, D. B., & Thurik, R. (2001). Linking entrepreneurship to growth. OECD Science, Technology and Industry Working Papers, OECD Publishing. Google Scholar
  3. Audretsch, D. B., Thurik, R., Verheul, I., & Wennekers, S. (2002). Entrepreneurship: Determinants and policy in a European–US comparison. Boston: Springer. Google Scholar
  4. Barro, R. J. (1991). Economic growth in a cross-section of countries. Quarterly Journal of Economics, 106, 407–443. CrossRefGoogle Scholar
  5. Barzel, Y. (2005). A theory of the state. Cambridge: Cambridge University Press. Google Scholar
  6. Baumol, W. (1968). Entrepreneurship in economic theory. American Economic Review, 58, 64–71. Google Scholar
  7. Baumol, W. (1990). Entrepreneurship: productive, unproductive, and destructive. Journal of Political Economy, 98, 893–921. CrossRefGoogle Scholar
  8. Baumol, W. (1993). Entrepreneurship, management, and the structure of payoffs. Cambridge: MIT. Google Scholar
  9. Berggren, N. (2003). The benefits of economic freedom: a survey. Independent Review, 8, 193–211. Google Scholar
  10. Bhagwati, J. (1982). Directly-unproductive profit-seeking (DUP) activities. Journal of Political Economy, 90, 988–1002. CrossRefGoogle Scholar
  11. Bianchi, M., & Henrekson, M. (2005). Is neoclassical economics still entrepreneurless? Kyklos, 58, 353–377. CrossRefGoogle Scholar
  12. Blanchflower, D. G. (2000). Self-employment in OECD countries. Labour Economics, 7, 471–505. CrossRefGoogle Scholar
  13. Blau, D. (1987). A time-series analysis of self-employment in the United States. Journal of Political Economy, 95, 445–467. CrossRefGoogle Scholar
  14. Brunetti, A., Kisunko, G., & Weder, G. (1997). Institutional obstacles to doing business: region-by-region results from a worldwide survey of the private sector. Background paper for World Development Report 1997, Policy Research Working Paper 1759, Washington D.C.: World Bank. Google Scholar
  15. Cantillon, R. (1755). In H. Higgs (Ed.), Essai sur la nature de commerce en géneral. London: Macmillan, 1931. Google Scholar
  16. Carlsson, F., & Lundström, S. (2002). Economic freedom and growth: decomposing the effects. Public Choice, 112, 335–344. CrossRefGoogle Scholar
  17. De Haan, J., Lundström, S., & Sturm, J.-E. (2006). Market-oriented institutions and policies and economic growth: a critical survey. Journal of Economic Surveys, 20, 157–191. CrossRefGoogle Scholar
  18. Demsetz, H. (1982). Barriers to entry. American Economic Review, 72, 47–57. Google Scholar
  19. De Soto, H. (2003). The mystery of capital: Why capitalism triumphs in the West and Fails everywhere else. New York: Basic Books. Google Scholar
  20. Dixit, A. (1996). The making of economic policy: A transaction cost perspective. Cambridge: MIT. Google Scholar
  21. Ekelund, R. B., & Hébert, R. F. (1990). A history of economic thought and method (3rd ed.). New York: McGraw-Hill. Google Scholar
  22. Falvey, R., Foster, D., & Greenaway, R. (2004). Intellectual property rights and economic growth. GEP Research Paper, Nottingham University, Nottingham. Google Scholar
  23. Foss, N. J., & Klein, P. G. (2005). Entrepreneurship and the economic theory of the firm: Any gains from trade? In R. Agarwal, S. A. Alvarez & O. Sorenson (Eds.), Handbook of entrepreneurship: Disciplinary perspectives. Boston: Kluwer. Google Scholar
  24. Friedman, M. (1962). Capitalism and freedom. Chicago: University of Chicago Press. Google Scholar
  25. Friedman, M. (1977). Nobel lecture: inflation and unemployment. Journal of Political Economy, 85, 451–472. CrossRefGoogle Scholar
  26. Glaeser, E., La Porta, R., Lopez de Silanes, F., & Shleifer, A. (2004). Do institutions cause growth? Journal of Economic Growth, 9, 271–303. CrossRefGoogle Scholar
  27. Grilo, I., & Thurik, R. (2004). Determinants of entrepreneurship in Europe. Discussion Paper no. 3004, Max Planck Institute for Research Into Economic Systems, Group Entrepreneurship, Growth and Public Policy. Google Scholar
  28. Grubel, H. G. (1998). Economic freedom and human welfare: some empirical findings. Cato Journal, 18, 287–304. Google Scholar
  29. Gwartney, J., & Lawson, R. (2005). Economic freedom of the world 2005. Downloadable from
  30. Gwartney, J., Lawson, R., & Holcombe, R. (1999). Economic freedom and the environment for economic growth. Journal of Institutional and Theoretical Economics, 155, 643–663. Google Scholar
  31. De Haan, J., & Sturm, J.-E. (2000). On the relationship between economic freedom and economic growth. European Journal of Political Economy, 16, 215–241. CrossRefGoogle Scholar
  32. Hayek, F. A. (1946). The meaning of competition. In Individualism and economic order. Chicago: University of Chicago Press. Google Scholar
  33. Hayek, F. A. (1968). Competition as a discovery procedure. In New studies in economics, politics, philosophy, and the history of ideas. London: Routledge. Google Scholar
  34. Henrekson, M. (2005). Entrepreneurship: a weak link in the welfare state? Industrial and Corporate Change, 14, 437–467. CrossRefGoogle Scholar
  35. Heston, A., Summers, R., & Aten, B. (2002). Penn world tables, mark 6.1. Center for International Comparisons (CICUP), University of Pennsylvania. Google Scholar
  36. Huber, P. J. (1964). Robust estimation of a location parameter. Annals of Mathematical Statistics, 35, 73–101. CrossRefGoogle Scholar
  37. Kirzner, I. (1980). The prime mover of progress. In I. Kirzner & A. Seldon (Eds.), The entrepreneur in capitalism and socialism. London: Institute of Economic Affairs. Google Scholar
  38. Kirzner, I. (1985). Discovery and the capitalist process. Chicago: University of Chicago Press. Google Scholar
  39. Kirzner, I. (1997). Entrepreneurial discovery and the competitive market process: An Austrian approach. Journal of Economic Literature, 35, 60–85. Google Scholar
  40. Knight, F. (1921). Risk, uncertainity, and profit. Reprint 1965. New York: Houghton Mifflin. Google Scholar
  41. Kortum, S., & Lerner, J. (2000). Assessing the contribution of venture capital to innovation. Rand Journal of Economics, 31, 674–691. CrossRefGoogle Scholar
  42. Kreft, S. F., & Sobel, R. S. (2005). Public policy, entrepreneurship, and economic freedom. Cato Journal, 25, 595–616. Google Scholar
  43. Lazear, E. M. (2002). Entrepreneurship. NBER working paper 9109. Google Scholar
  44. Lindbeck, A., Nyberg, S., & Weibull, J. (1999). Social norms and economic incentives in the welfare state. Quarterly Journal of Economics, 114, 1–35. CrossRefGoogle Scholar
  45. Méon, P.-G., & Weill, L. (2006). Does better governance foster efficiency? An aggregate frontier analysis. Economics of Governance, 6, 75–90. CrossRefGoogle Scholar
  46. von Mises, L. (1949). Human action. London: William Hodge. Google Scholar
  47. Mokyr, J. (2006). Long-term economic growth and the history of technology. In P. Aghion & S. Durlauf (Eds.), Handbook of economic growth. Oxford: Oxford University Press. Google Scholar
  48. North, D. C. (1990). Institutions, institutional change, and economic performance. Cambridge: Cambridge University Press. Google Scholar
  49. North, D. C., Summerhill, W. R., & Weingast, B. (2000). Order, disorder and economic change: Latin America vs. North America. In B. B. de Mesquita & H. Root (Eds.), Governing for prosperity. New Haven: Yale University Press. Google Scholar
  50. Olson, M. (1982). The rise and decline of nations: Economic growth, stagflation, and social rigidities. New Haven: Yale University Press. Google Scholar
  51. Ricketts, M. (1987). The new industrial economics: An introduction to modern theories of the firm. New York: St. Martin’s Press. Google Scholar
  52. Romer, P. (1990). Endogenous technological change. Journal of Political Economy, 98, 71–102. CrossRefGoogle Scholar
  53. Rosenberg, N. (1992). Economic experiments. Industrial and Corporate Change, 1, 181–203. CrossRefGoogle Scholar
  54. Rosenberg, N., & Birdzell, L. (1986). How the West grew rich. New York: Basic Books. Google Scholar
  55. Russell, A., & Rath, J. (2002). Unravelling the rag trade: Immigrant entrepreneurship in seven world cities. Oxford: Berg Publishers. Google Scholar
  56. Sachs, J. D., & Warner, A. M. (1997). Fundamental sources of long-run growth. American Economic Review, 87, 184–188. Google Scholar
  57. Salerno, J. T. (1993). Mises and Hayek dehomogenized. Review of Austrian Economics, 6, 113–146. CrossRefGoogle Scholar
  58. Schumpeter, J. A. (1911/1934). The theory of economic development. Cambridge: Harvard University Press. Google Scholar
  59. Schumpeter, J. A. (1942). Capitalism, socialism, and democracy. London: Harper Perennial. Google Scholar
  60. Segerstrom, P. S., Anant, T. C. A., & Dinopoulos, E. (1990). A Schumpeterian model of the product life cycle. American Economic Review, 80, 1077–1091. Google Scholar
  61. Sinn, H.-W. (1995). A theory of the welfare state. Scandinavian Journal of Economics, 97, 495–526. CrossRefGoogle Scholar
  62. Sinn, H.-W. (1997). The selection principle and market failure in systems competition. Journal of Public Economics, 66, 247–274. CrossRefGoogle Scholar
  63. Sturm, J.-E., Leertouwer, E., & de Haan, J. (2002). Which economic freedoms contribute to growth? A comment. Kyklos 55, 403–416. CrossRefGoogle Scholar
  64. Temple, J. (1999). The new growth evidence. Journal of Economic Literature, 37, 112–156. Google Scholar
  65. UNU. (2006). World income inequality database, v2.0. Helsinki: United Nations University-World Institute for Development Economics Research. Google Scholar
  66. Wacziarg, R. (2001). Measuring the dynamic gains from trade. World Bank Economic Review, 15, 393–429. CrossRefGoogle Scholar
  67. Wennekers, S., & Thurik, R. (1999). Linking entrepreneurship and economic growth. Small Business Economics, 13, 27–55. CrossRefGoogle Scholar
  68. World Bank. (2006). World development indicators. Online database. Washington, DC: the World Bank. Google Scholar

Copyright information

© Springer Science+Business Media, BV 2007

Authors and Affiliations

  1. 1.Department of Economics, Aarhus School of BusinessUniversity of AarhusAarhus CDenmark
  2. 2.Center for Strategic Management and GlobalizationCopenhagen Business SchoolFrederiksbergDenmark
  3. 3.Department of Strategy and ManagementNorwegian School of Economics and Business AdministrationBergenNorway

Personalised recommendations