Edited by Robert F. Salvino Jr., Michael T. Tasto and Gregory M. Randolph
Chapter 4: Measures of entrepreneurship and institutions: a more formal robustness check
AbstractOur purpose was to provide a robustness check of the relationship between entrepreneurial activity and economic freedom. As a deliberate "robustness check," we estimated various U.S. state-based measures of entrepreneurship found in the research literature, using the same estimator, all within a consistent model that included political institutions, for which the Economic Freedom of North America index was the proxy. Our base model was derived from Reynolds, Storey, and Westhead (1994). We failed to replicate many of the results found in the literature. The various measures of entrepreneurship were related to different independent variables. Economic freedom was not a consistently significant predictor of entrepreneurial activity. Although pro-market institutions are undoubtedly a significant driver of entrepreneurial activity, we conclude that researchers must carefully specify what they mean by "entrepreneurship" and "institutions," and, generally, perform more robustness testing. REFERENCE Reynolds, P., D. Storey, and P. Westhead (1994), "Cross-national comparisons of the variation in new firm formation rates", Regional Studies, 28 (4), 443-456.
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