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Economic Behavior, Economic Freedom, and Entrepreneurship

Economic Behavior, Economic Freedom, and Entrepreneurship

Edited by Richard J. Cebula, Joshua Hall, Franklin G. Mixon Jr and James E. Payne

Expert editors add to an important field of research, the economics of entrepreneurship, and explore how institutions influence entrepreneurial behavior. This book provides comprehensive and contemporary insights into the interaction between economic behavior of firms and households, economic freedom, and entrepreneurship, and how it generates an environment with greater opportunities for growth and development for individuals, households, and private-sector firms.

Chapter 19: Economic freedom and entrepreneurial activity in American states

Tarkan Cavusoglu and Oguzhan Dincer

Subjects: economics and finance, austrian economics, economics of entrepreneurship, political economy


Using a panel of 48 contiguous American states over 15 years, we estimate the co-integrating relationship between economic freedom and entrepreneurial activity and find there is threshold level of development which determines if economic freedom increases entrepreneurial activity or not. According to our estimations economic freedom increases entrepreneurial activity in relatively poorer states. Our results have important policy implications. We do not find a statistically significant relationship between individual areas of economic freedom and entrepreneurial activity, indicating that decreasing the size of the government without decreasing its scope does not cause entrepreneurial activity to increase.

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