Conclusion

The use of economic development incentives to aid and promote private entities has been a popular strategy in local and state policy. Proponents of these incentives point out that their use promotes business formation in a particular jurisdiction, leads to job creation, and ultimately economic growth and development.

This study fills this void and thus adds to the literature regarding the effect economic development incentives have on various economic outcomes. Most importantly, it operationalizes the distinction made between productive and unproductive entrepreneurship via Baumol (1990) and provides an empirical assessment of the extent to which such development incentives may promote or hinder the growth of either type of entrepreneurship. With the use of a new measure of the constitu­tional restrictions imposed on state and local governments from Patrick (2014a) and measures of productive and unproductive entrepreneurial activity derived from Sobel (2008), this study finds that the greater avail­ability and more liberal application of public assistance to private entities is negatively associated with productive entrepreneurship and positively associated with unproductive entrepreneurship.

Further, the results also suggest that with the persistence of such devel­opment incentives, network effects are developed that further change the relative payoff to pursuing either type of entrepreneurial activity (either productive or unproductive), thus compounding the issue. Overall then, this study has provided not only a diagnostic on the impact that economic development incentives have on entrepreneurship across states, it also provides important insights and information regarding the type of entrepreneurship (again either productive or unproductive), that such development incentives ultimately incentivize. These results should open up new avenues and opportunities for future research.