THE RELATIONSHIP BETWEEN THE STATE OF THE ECONOMY AND ENTREPRENEURIAL ACTIVITY

In this study, we examine how entrepreneurs’ perception of the national and local economy affects the entrepreneurial activity in U.S. states. We also look into the impact on small business owners’ outlook for the future and on their firm’s performance. Does the status of the economy affect small business owners’ optimism, their activities, and their success? We find that although the perception of the economy does not have an impact on the entrepreneurial activity in a state (as measured by the number of new startups), it has a significant impact on both small firms’ performance and small business owners’ outlook for the future. In the states where the business owners have a more positive view on the national economy, small firms are more successful and their owners are more optimistic in terms of their plans for future hiring. In the states where the business owners have a more positive view on the local economy, small firms are more successful and their owners are more optimistic in terms of encouraging others to start a business in their state. We also find that the states with a higher percentage of owners showing their business as primary employment tend to have significantly more entrepreneurial activity when compared to the other states.