Entrepreneurship in Missouri

Abstract

There is a well-based belief that entrepreneurial activity and economic growth are positively related. This paper uses various measures of entrepreneurial activity and business formation to compare Missouri's record to that of the national average and to its neighboring states. Based on our analysis, the average small business in Missouri looks similar to those in other states. But the climate in which small businesses are created and generate jobs is much different in Missouri relative to other states. Two indices of entrepreneurship, each based on different criteria, rank Missouri far down the list of states when it comes to entrepreneurial activity. The data on business formation corroborates this picture of deficient entrepreneurial activity: between 2005 and 2013, the pace at which Missouri created new establishments pales in comparison to the national average, and to the average of the neighboring states. The outcome of not creating new businesses also is evident in slower jobs growth. How to encourage more entrepreneurship in Missouri? An oft-suggested approach is to use enact legislation or pass special incentives, such as tax abatements, to attract specific businesses or industries. Trying to pick winners in business is an ill-advised policy to promote economic growth. Public policy aimed at encouraging entrepreneurship should consider improving the economic and social environment within which all entrepreneurs will operate. This can be done by improving the tax climate, labor market conditions, and especially the educational attainment of the labor force.