ECONOMIC DEVELOPMENT QUARTERLY / February 2001Goetz, Freshwater / ENTREPRENEU SHIP DETERMINANTS State-Level Determinants of Entrepreneurship and a Preliminary Measure of Entrepreneurial Climate

State and local governments increasingly look to entrepreneurship as a means of stim-ulating economic growth. However, can the public sector play a role in promoting entrepreneurial activity—and if so, what should that role be? The authors investigate independent effects of financial and human entrepreneurial capital and ideas on entre-preneurial activity in the 50 states. Financial entrepreneurial capital has an inverse U-shaped relationship with entrepreneurial activity, suggesting there are limits to using increasing amounts of financial capital to stimulate entrepreneurship, all else being equal. The authors rank each state in terms of predicted and actual entrepre-neurial activity scores and propose a preliminary measure of the entrepreneurial “cli-mate ” of each state. Although most states are ranked near where casual analysis might place them, the authors find that others have predicted values that differ significantly from actual values. This suggests that climate may be an important factor in stimulat-ing entrepreneurial activity. Despite its importance and overarching presence in market-based economies, entrepreneur-ship is an elusive concept. At its most general, it is the ability to marshal resources to seize new business opportunities. Entrepreneurship, defined in this broad sense, is central to eco-nomic growth. —Organization for Economic Cooperation and Development (OECD) (1998, p. 41) With the growing belief in the dominant role of small firms in the economic growth of commu