Fact of the Week: A 10 Percent Increase in Entrepreneurship in Traded Industries Decreases Poverty by 2.2 Percent

Source: Neil Lee and Andrés Rodríguez-Pose, “Entrepreneurship and the fight against poverty in US cities,” Centre for Economic Policy Research, April 2020.

Commentary: Small businesses and entrepreneurship are often heralded as the engines of economic prosperity, but not all entrepreneurs are created equal. Unless a start-up competes outside its community, the business will largely move wealth around within the community rather than bring more wealth into the community. A new study bolsters the evidence for this, examining the poverty and rates of entrepreneurship in every Metropolitan Statistical Area in the United States from 2005 to 2015. Controlling for surrounding regionss, employment rates, and workforce skill levels, it finds that a 10 percent increase in an area’s entrepreneurship in traded industries reduces its poverty rate by an average of 2.2 percent, while changes in non-traded industries do not have a statistically significant effect.