Microenterprises and economic growth: a panel study of the US states 1977–1997

Abstract

In this study, we examine the role of microenterprises in US economic growth. Using a panel of the 48 lower US states from 1977 to 1997, we estimate an expanded Carlino–Mills type model of growth. Microenterprises are defined as having between one and four employees. Results suggest that a higher share of goods producing firms that are microenterprises tend to be associated with lower levels of population, employment and income growth, while a higher share of service producing firms classified as micro are associated with higher levels of growth. These results suggest that care must be taken when promoting microenterprises as a major engine of economic growth.

Acknowledgements

Support for this work was provided in part by the Wisconsin Agricultural Experiment Station, University of Wisconsin – Madison, the University of Wisconsin – Extension and the Department of Resource Economics and Policy and the University of Maine Cooperative Extension.

Notes

¹ This does not include sole proprietorships without employees. If we included sole proprietorships without employees in our definition, like the Association for Enterprise Opportunity (AEO) does, then microbusinesses would account for over 80% of all businesses in the US.