Entrepreneurship in red states versus blue states

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pic of entrepreneurs

I’m just finishing up some interesting research with my co-author Emanuel Oliveira this week. We will submit the paper to an economics or entrepreneurship journal shortly, but the findings are interesting enough that I feel the need to share them with our readers ahead of time.

The study

We analyzed 10 years of entrepreneurship data from the Kauffman foundation, combined with data on the political orientation of every state in the U.S. We coded states at ‘red states’ if they were dominated by the Republican party (i.e., both state houses and the governor are from the same party) and ‘blue states’ if they were dominated by the Democratic party. We then ran regressions with control variables so see how the political orientation of a state affects it entrepreneurs.

Entrepreneurship in blue states

The results strongly suggest that blue states have higher rates of entrepreneurial entry by individuals with high levels of education.

Democrats tend to tout the need for regulations, government spending, and the creation of a social safety net to protect the disadvantaged. Our research suggests that this creates conditions whereby educated entrepreneurs feel they can take risks because they will have a net to catch them if they fall.

Entrepreneurship in red states

By contrast, red states have higher rates of entrepreneurial entry by individuals with high incomes.

I think this is really interesting, especially given that Republicans usually consider themselves the party of the entrepreneurs. Turns out they are the party of entrepreneurs with greater financial capital. Perhaps these are individuals that are enticed by tax-cuts, less regulation, and reduced government spending.

Conclusion

We didn’t find a main effect for political control by either party, which suggests that both parties’ policies can be good for entrepreneurs, but for different types of entrepreneurs. Perhaps a good follow on study would be to see if entrepreneurship by those with higher education is more valuable than that of those with higher prior income or vice versa.

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André is a Professor of Entrepreneurship at Michigan Tech. At LaunchScore, he is responsible for driving the mission, vision, and goals of the company. He is interested in how firms and entrepreneurs create value through innovation. He has published articles on innovation and entrepreneurship in leading management journals including: Journal of Management, Long Range Planning, Journal of Business Research, and Journal of Engineering Management.