Do Entrepreneurs Enhance Economic Growth in Lagging Regions?

Because support for entrepreneurship is often a core part of economic development strategies, we investigate whether it is important for growth in lagging, rural U.S. regions by focusing on Appalachia. While entrepreneurship has the advantage of being endogenous and “home grown,” previous research suggests that remote rural regions may lack the agglomeration economies to benefit greatly from entrepreneurship. Using county-level data, we explore the relationship between entrepreneurship and economic growth, employing self-employment and small business data as proxies for entrepreneurship. We look at the results for the Appalachian Regional Commission (ARC) region, using its immediate Appalachian neighbors outside the ARC region as a control group. Moreover, we also account for self-sorting by proprietors to locate in expanding regions. Despite strong barriers to growth in Appalachia, our empirical results suggest that self-employment is positively associated with employment and income growth, and that efforts to promote entrepreneurial capacity may be among the few economic development strategies with positive payoffs in remote regions.