Do Economic Freedom and Entrepreneurship Impact Total Factor Productivity?

Christian Bjørnskov, Nicolai Juul Foss

    Research output: Working paperResearch

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    Abstract

    The economics of growth has shown that countries not only grow by deploying higher levels of inputs to production, but also by better allocating whatever resources are at their disposal and by introducing productivity-enhancing innovations. We proffer arguments as to why and how entrepreneurship as well institutions of liberty (i.e., economic freedom, including the rule of law, easy regulations, low taxes and limited government interference in the economy) positively impact total factor productivity (TFP): These institutions allow entrepreneurial experimentation with the combination of factors to take place at low transaction costs. We test these ideas on a unique panel data set derived from Compendia, World Bank data and the Fraser Institute’s economic freedom data. We find that while entrepreneurship positively impacts TFP, the marginal contribution of entrepreneurship to TFP is strongest in economies with substantial government activity.
    Original languageEnglish
    Place of PublicationFrederiksberg
    PublisherCenter for Strategic Management and Globalization
    Number of pages43
    ISBN (Print)9788791815614
    Publication statusPublished - 2010
    SeriesSMG Working Paper
    Number8/2010

    Keywords

    • Total factor productivity
    • Freedom variables
    • Self-employment

    Cite this

    Bjørnskov, C., & Foss, N. J. (2010). Do Economic Freedom and Entrepreneurship Impact Total Factor Productivity? Center for Strategic Management and Globalization . SMG Working Paper, No. 8/2010