Local economic freedom and creative destruction in America
Economic freedom facilitates the market selection mechanism that enables the Schumpeterian creative destruction process. I develop a framework depicting how economic freedom, which reduces entry barriers and transaction costs, acts as an external enabler that facilitates the creation of firms and jobs. It also facilitates the market correction device, potentially serving as a disabling force to allow firm and job destruction. Using a novel metropolitan statistical area–level dataset, I investigate empirically the role of local economic freedom on dynamism for a sample of nearly 300 U.S. cities over the period 1972–2012. My results confirm that economic freedom is positively associated with firm and job creation, but it has no effect on firm and job destruction.
KeywordsCreative destruction Dynamism Economic freedom Entrepreneurial ecosystems External enablers Firm entry Firm exit Public policy Regional entrepreneurship Institutions
JEL classificationH32 H71 J08 L26 L53 M13 O43 P10 R11 R50
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