Study Finds Prevalence of Entrepreneurship Tied to Regulatory Environment, Portion of Immigrants

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Communities with vibrant entrepreneurial ecosystems more likely to prosper 

BOSTON – The prevalence of entrepreneurship is linked to both the regulatory environment and the portion of foreign-born immigrants in a jurisdiction, according to a new study published by Pioneer Institute.

“Jurisdictions with vibrant entrepreneurial ecosystems prosper, while those without them decay,” said Joshua Bedi, author of Open for Business?  Entrepreneurship, Regulations, and Immigration in New England and Beyond.  “The defining characteristics of jurisdictions with strong entrepreneurial climates are low regulatory burdens and high concentrations of immigrants.”

Bedi finds that the regulatory characteristics most conducive to entrepreneurship are:

  • Low taxes and business start-up costs
  • Ease of purchasing developing and using land for commercial purposes
  • Employee and employer mobility, and
  • Less burdensome occupational licensing regulations

Massachusetts and Connecticut have environments that are slightly less burdensome than average, which may account for both having levels of entrepreneurship that have been above the national average for more than 50 years.  The impact is even greater in New Hampshire, which has the nation’s least burdensome regulatory environment.

The 20 Massachusetts communities with the lowest tax rates have 15 percent more start-ups per capita and four times more “growth events” per capita than the 19 communities with the highest tax rates.

Bedi measures entrepreneurship as new for-profit business registrants per capita.  To capture the most innovative and impactful types of entrepreneurship, he uses a narrower metric: high-value acquisitions of large companies and initial public offerings (IPOs) per capita.  While the overall amount of entrepreneurship increased between 2000 and 2015, high-pact entrepreneurship has declined both in Massachusetts and nationally.

There is also a strong correlation between the portion of foreign-born and entrepreneurial activity.  Immigrants are more likely to be self-employed than native-born individuals irrespective of educational attainment.

A 1 percent increase in the share of the state population that is composed of immigrants correlates with a 24 percent increase in startups per capita.  The increase jumps to 42 percent per capita for high-value acquisitions and IPOs.

Vermont is the New England outlier to the correlation between immigrants and entrepreneurship.  Bedi suggests that may be because of the state’s combination of harsh regulation and a low proportion of immigrants.

Among Bedi’s recommendations are that municipalities should streamline the steps required to start a business.  He notes that starting a restaurant in Boston requires 92 steps that involve 9 city agencies.  Other cities have reduced this to 35 steps.  

Bedi also recommends that cities establish an online portal that would allow potential entrepreneurs to log in and navigate necessary paperwork and approvals.

He urges states to incentivize mobility by refusing to enforce non-compete agreements between employers and employees, eliminate occupational licenses that don’t protect public safety, and to advocate for comprehensive federal immigration reform. 

Joshua Bedi earned his Ph.D. and was a Mercatus Center Fellow at George Mason University. He is now working at Copenhagen Business School as a Postdoc in Entrepreneurship at the Department of Strategy and Innovation, where he works under the Mærsk McKinney Møller Chair in Entrepreneurship.