Government Investments and Entrepreneurship

João Ricardo Faria, Laudo Ogura, Mauricio Prado, Christopher J. Boudreaux *

*Corresponding author for this work

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How can governments attract entrepreneurs and their businesses? The view that new business creation grows with the optimal level of government investment remains appealing to policymakers. In contrast with this active approach, we build a model where governments may adopt a passive approach to stimulating business creation. The insights from this model suggest new business creation depends positively on factors beyond government investments—attracting high-skilled migrants to the region and lower property prices, taxes, and fines on firms in the informal sector. These findings suggest whether entrepreneurs generate business creation in the region does not only depend on government investments. It also depends on location and skilled migration. Our model also provides methodological implications—the relationship between government investments and new business creation is endogenously determined, so unless adjustments are made, econometric estimates will be biased and inconsistent. We conclude with policy and managerial implications.
Original languageEnglish
JournalSmall Business Economics
Issue number4
Pages (from-to)1657-1670
Number of pages14
Publication statusPublished - Dec 2023

Bibliographical note

Published online: 15 March 2023.


  • Entreprenuership
  • Government
  • Investments
  • New business creation

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