Journal Articles

Public Policy, Entrepreneurship, and Economic Freedom

2005, The Cato Journal

Steven F. Kreft, Russell S. Sobel


With the recognition that entrepreneurial activity is a key factor in economic growth, many local governments have begun to enact policies targeted at promoting entrepreneurship. One frequently cited strategy for promoting entrepreneurial activity is to attract large amounts of venture capital, in the hopes of inducing more entrepreneurial activity. In this paper we test the direction of causality between venture capital and entrepreneurial activity and find that it is the presence of entrepreneurial activity that draws venture funding to an area, and not vice versa. Thus, enacting policies consistent with economic freedom, which provide a good environment for attracting or developing individual entrepreneurs, are the appropriate economic development policies.


Kreft, Steven F. and Russell S. Sobel (2005), “Public Policy, Entrepreneurship, and Economic Freedom,” The Cato Journal, Vol. 25, No. 3, pp. 595-616.


entrepreneurship, venture capital, economic freedom, Granger causality

Kelley School of Business

Faculty & Research