How America’s frontier past still affects American economic dynamism

By James Pethokoukis

Here’s an interesting illustration of the William Faulkner line “The past is never dead. It’s not even past,” courtesy of the working paper “Rugged Entrepreneurs: The Geographic and Cultural Contours of New Business Formation.” Researchers John M. Barrios, Yael Hochberg, and Daniele Macciocchi look at how historical and cultural factors, as well as geography, affect new business formation. The focus here is on three factors: (a) the frontier experience and how it leads to a more individualistic culture in a specific area; (b) an area’s historical diversity in immigrant background, spurring creativity; and (c) the impact of a rugged terrain contributing to a culture of individualism and self-reliance.

Good stuff, especially if you’re interested (as I am) in how to promote economic growth and the extent to which culture influences growth, innovation, and technological progress. I have, for instance, written occasionally about Europe’s lack of high-impact tech startups, and how that might (according to research) be related to the region’s greater skepticism toward entrepreneurship and a higher level of uncertainty avoidance as compared to America.

Of course, the beating heart of a growing and dynamic economy is the entrepreneur. As Barrios, Hochberg, and Macciocchi note, “Entrepreneurial activity has long been recognized as a primary contributor to economic growth … and innovation-driven growth in particular.” Yet while the importance of the business risk-taker is well established and well understood, less is known about the ecology of entrepreneurial emergence. BHM: “In particular, we know little regarding how geographic and historical-cultural factors shape new business formation, despite their importance to other economic activities. This paper seeks to fill this gap.” Their findings:

Overall, the analysis suggests that individualism, as proxied by the county’s historical frontier experience, is a significant factor in explaining the current geographic distribution of new business formation. … We observe a positive and significant relation between a county’s historical diversity and per capita new business starts, suggesting that on average, the diversity of viewpoints and values brought by immigrants creates a persistent local culture that facilitates new business formation. … [We] document a positive and significant relation between a county’s terrain ruggedness and the number of new business registrations per capita. … [W]e also observe a small positive and statistically significant relationship between geographic terrain ruggedness and entrepreneurial quality. … Our study points to the fundamental role of geographic and historical-cultural features, especially rugged individualism, in explaining contemporary new business formation in the U.S.