Director of economic policy studies Kevin A. Hassett examines how differences in government regulation explain cross-country differences in entrepreneurship. The success of the American economy has relied on American entrepreneurs, and the reason that entrepreneurship has flourished in the United States is because the government has stayed out of the way of business activity.

Senior Fellow Kevin A. Hassett

If they had held entrepreneurial Olympics in the 20th century, then the United States would have walked away with most of the gold medals.

But why have American entrepreneurs been better? Is there something about the American spirit that produces effective risk-takers? Do our institutions stimulate entrepreneurship better, or were we just lucky?

To answer the question, economists Silvia Ardagna and Annamaria Lusardi examined survey data collected from around 150,000 individuals in 37 different countries. Ardagna and Lusardi found that respondents identified themselves as entrepreneurs for two reasons. “Opportunity entrepreneurs” started a business because they planned to create a profitable one. “Remedial entrepreneurs” started a business because they lost their jobs or otherwise had no better option.

The first type of entrepreneur is likely the engine of growth in a dynamic economy. A lousy economy could bring forth many new “entrepreneurs” of the second type, as the jobless try to make ends meet by hawking baubles in the town square.

The key result of the paper for our purposes is visible in the attached chart. The vertical axis shows the concentration of opportunity entrepreneurs in high-income countries in North America and Europe. More than 9 percent of Americans are “opportunity entrepreneurs,” which ranks us first among these high-income nations. The horizontal axis is a composite index of regulatory barriers to entry: The higher the rating, the more difficult it is to start a business. Among these countries, Spain is the most difficult to start a business in.

The chart demonstrates a strong relationship between entrepreneurship and regulation. This suggests that U.S. economic success is largely attributable to a relatively favorable regulatory climate. Entrepreneurs have succeeded in the U.S. because government has historically stayed out of the way.

Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.