Abstract

Although the decision to become an entrepreneur is an individual one, institutional factors are likely to influence the decision of an individual concerning whether or not to become an entrepreneur. It has been argued that increasing levels of economic freedom is an effective means to promote productive entrepreneurial activity (Gwartney and Lawson, 2002). In market-based economies with high levels of economic freedom, entrepreneurs may pursue economic profit by addressing consumer desires. Conversely, economies with high taxes, heavy regulations, trade restrictions, and a lack of property rights raise the cost of doing business, making pursuing such opportunities less attractive. In economies lacking economic freedom, opportunities for rent-seeking could yield higher returns than value-creating entrepreneurial opportunities (Kreft and Sobel, 2005), and higher levels of rent-seeking activities are likely to be observed. However, economies with high levels of economic freedom are more likely to have individuals engaging in productive entrepreneurship instead. In this paper, we investigate the following research question: How does economic freedom impact the level of self-employment in an economy?

Share

COinS