Economic Freedom and Entrepreneurial Activity: Some Cross-Country Evidence

Societies do not grow and prosper without entrepreneurs. Entrepreneurs are here defined as those individuals who exercise their ability and willingness to perceive new economic opportunities and to introduce their specific ways of seizing these opportunities into the market in the face of uncertainty (Knight 1921; Wennekers and Thurik 1999 pp. 46–47). They may do so by starting up firms or by instituting changes within established firms. As Baumol (1990) argues, entrepreneurial creativity need not necessarily be socially beneficial;1 still, new products, processes,ways of organizing, etc., all essential aspects of the growth process, are outcomes of entrepreneurship (Schumpeter 1911; Rosenberg 1992; Wennekers and Thurik 1999). Not surprisingly, the history of all rich societies is ripe with entrepreneurs:Julius Caesar’s friend Balbus went to Rome from a far–away province (Spain) and worked his way up through the ranks to become one of the richest people in the Empire, and on his way built both theatres and public baths; Thomas Edison’s inventions both made him one of the most famous people of his age and brought electric light and many other modern appliances to ordinary people; and in more recent years, Bill Gates founded one of the world’s largest personal fortunes by bringing the computer age into people’s homes. Common to these three individuals and countless other less known is entrepreneurial ability and will. Indeed, while culture may vary, it is arguable that the particular characteristics of entrepreneurship are anthropological constants (von Mises 1949; Kirzner 1997; Russell and Rath 2002).