A County-Level Assessment of Entrepreneurship and Economic Development in Appalachia Using Simultaneous Equations

Entrepreneurship is now recognized as a strategy to achieve economic growth in many regions. The goal of this paper is to increase the understanding of entrepreneurship's contributions to economic growth and its potential as a development strategy for a region, such as Appalachia, characterized by poverty and underdevelopment. Using data on Appalachian counties, a system of simultaneous equations is empirically estimated to measure the effects of entrepreneurship on economic growth and development. An expanded Carlino-Mills growth model is used where changes in population, employment and per capita income represent measures of growth. Proprietorship and firm formation rate data are used to measure entrepreneurial activity. The results show start-up businesses contribute significantly to determining population growth. Employment growth is positively affected by self-employment rates as well as by firm formation rates. In terms of policy implications, the paper recommends the creation of an environment to encourage entrepreneurial activity as a strategy to battle unemployment. It concludes that regional policy makers need to renew their efforts to support the growth of self-employment and sustain the existing firms