Policy Series: Economic Freedom and Entrepreneurship
Sarah A. Low, Austin Sanders, and Mark C. White
This paper identifies the trends and differences in entrepreneurship between Missouri’s metropolitan and nonmetropolitan (rural) areas to better inform policy intended to promote economic development through entrepreneurship. We examine three different entrepreneurship proxies across time, with a focus on how to best encourage rural entrepreneurship and its resilience going into the next business cycle. We also examine the geography of entrepreneurship in Missouri and highlight areas where greater entrepreneurship may offer a sustainable path to greater economic development. This is important for policymakers to consider, because the “entrepreneurial” businesses in rural Missouri offer communities the goods and services often associated with increases in rural qualityof-life (e.g., café, grocery store, farmers’ market) and help maintain a vibrant sense of place in rural communities. It is this sense of place that is essential to retain other businesses in rural communities, a phenomenon known as place-making.
Government restrictions on workers and employers tend to have a dampening effect on their ability to thrive. There have been numerous studies of the relationship between state labor market restrictions and labor market outcomes (as well as economic outcomes in general). As theory would imply, that literature generally has found a positive relationship between labor market freedom and various measures of positive economic outcomes. After a discussion of the concept of economic freedom and how it is measured in labor markets, this paper briefly reviews that literature. It also provides a detailed examination of how Missouri compares to its neighboring states and the U.S. average on a variety of measures of both labor market freedom and economic prosperity. Many other states are doing better than Missouri in both areas. A prescription for policy reforms that will move to correcting that disparity is provided.
The question addressed in this study is: Does Missouri’s record in promoting economic freedom help explain its lack of economic success? To answer this question, changes in a measure of economic freedom in each state are compared to the growth rates of real output. Comparing the behavior of these two measures over time indicates that states that have experienced improvements in economic freedom over the past couple of decades—slower increases in government involvement in the economy—are, on average, more likely to have experienced higher rates of economic growth. Looking specifically at Missouri, the results suggest that Missouri’s tepid economic growth is related to its equally lackluster record in improving the economic freedom of its citizens and businesses.
R.W. Hafer and Andrew Sullivan
This paper uses various measures of entrepreneurial activity and business formation to compare Missouri’s record to that of the national average and to its neighboring states. Based on our analysis, the average small business in Missouri looks similar to those in other states. But the climate in which small businesses are created and generate jobs is much different in Missouri relative to other states. Two indices of entrepreneurship, each based on different criteria, rank Missouri far down the list of states when it comes to entrepreneurial activity. The data on business formation corroborates this picture of deficient entrepreneurial activity: between 2005 and 2013, the pace at which Missouri created new establishments pales in comparison to the national average, and to the average of the neighboring states. The outcome of not creating new businesses also is evident in slower jobs growth.