October, 2018

Infrastructure Investments and Entrepreneurial Dynamism in the U.S.

  • Daniel Bennett

    Research Professor, Baugh Center for Entrepreneurship and Free Enterprise, Baylor University
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Investments in physical infrastructure induce environmental changes that serve both an enabling and disabling function, potentially acting to simultaneously stimulate new business establishment and provoke exit by some incumbent establishments. The opening of a new establishment results in the creation of jobs that did not previously exist. Similarly, the closing of an establishment results in the permanent loss of jobs. I develop a theoretical model that depicts this external enabler/disabler process and test the model's predictions empirically tested using annual state-level data spanning the period 1993–2015. The results from dynamic panel system GMM estimation suggest that public and private infrastructure investments exert opposite effects on dynamism. Whereas private infrastructure investment is positively and significantly associated with the creation of businesses and jobs, public infrastructure investments are associated with the destruction of businesses and jobs. These results point to private infrastructure investment serving primarily an entrepreneurial enabler role and public infrastructure investment an entrepreneurial disabler role.