Economic Freedom and Net Business Formation‪.‬

Economic freedom indexes, especially the Fraser Institute/Cato Institute Economic Freedom of the World (EFW) index and the Heritage Foundation/Wall Street Journal Index of Economic Freedom, are becoming increasingly important as researchers seek to explore the link between economic freedom and prosperity. The consistent finding is that nations with more economic freedom--as indicated by security of property rights, free trade, limited government, low marginal tax rates, and so forth--enjoy higher per capita incomes and general living conditions compared with countries that are less free. (1) In a less aggregated study, Karabegovic et al. (2003) find that differences in economic freedom across U.S. states and Canadian provinces are significantly and positively related to differences in the level and growth of economic activity across states and provinces. Various researchers have used the Economic Freedom of North America (EFNA) index, published by the Fraser Institute (Karabegovic, McMahon, and Mitchell 2005), to address questions of income differentials between states, income growth, and entrepreneurship. (2) Scholars have also used the EFNA index to study migration. Ashby (2007), not surprisingly, finds that people tend to move from less free to more free areas.