Which Freedoms are most Important to Entrepreneurship?

The purpose of this paper is to identify those dimensions of economic freedom which have a stronger influence on business creation at different levels of development and institutional quality. It investigates the relationship between the level of new firms' creation and the dimensions of economic freedom in groups of countries. To measure entrepreneurial activity data were collected from World Bank Doing business on new business density, as the dependent variable while the ten components of the Index of economic freedom released by the Heritage Foundation and Wall Street Journal are used as independent variables. The research uses data for 76 countries, grouped in two clusters according to their level of development and several economic freedom characteristics. The findings reveal certain differences between the two groups of countries in terms of the types of freedom influencing business creation. Econometric modelling shows that in those countries with lower level of development and weaker institutions, the level of start-up entrepreneurship is mostly influenced by trade freedom and business freedom while in more developed countries with higher quality of institutional framework, the level of new business formation is positively influenced by financial freedom and low government spending.