UNL economists rank states by entrepreneurship activity

UNL economists rank states by entrepreneurship activity
North Dakota leads index; Michigan dips to No. 50

Troy Fedderson | University Communications

Fueled by its ongoing energy boom, North Dakota remains at the top of an annual list measuring states' ability to create new businesses.

Created by economists at UNL, the State Entrepreneurship Index is a measure of states' muscle when it comes to growing new enterprises. North Dakota has been at or near the top in each of the last four years. The latest index is based upon 2013 data from the U.S. Bureau of Labor Statistics, the U.S. Census, the U.S. Patent and Trademark Office and the Bureau of Economic Analysis in the U.S. Department of Commerce. Click to see state-by-state rankings.

The study was co-authored by economics faculty Eric Thompson and William Walstad.

Developed by economists from UNL's Bureau of Business Research and its Department of Economics in the College of Business Administration, the index is based upon five key components: a state's net growth in business establishments, per capita growth in business establishments, business formation rate, number of patents per thousand residents and average income for non-farm proprietors. The combination is designed to reflect key elements of an entrepreneurial climate: business startups and failures compared to population, innovation and income.

The rest of the 2013 top 10 are California, New York, Kentucky, New Hampshire, Connecticut, Texas, Utah, Oregon and Colorado.

Michigan was 50th. It is one of a swath of industrial Midwest states with comparatively low scores on the entrepreneurial index.

Michigan has lost more than 106,000 people since 2008, but has lost businesses at a faster rate. However, in 2013, its population grew slightly.

"Michigan is turning things around and should eventually do better on the index," said Thompson, director of Bureau of Business Research.

North Carolina was No. 49, preceded immediately by New Mexico, Indiana, Alabama, Arizona, Maine, Virginia, Ohio and Hawaii.

New York and New Hampshire both have been among the top 10 each of the past four years; Texas has been on it three times; Connecticut has appeared twice in the past four years. New York remains strong as a major population and finance center, while New Hampshire benefits from being a low tax state in a high-income region, Thompson explained.

"New Hampshire has a fantastic business environment — think very low taxes," Thompson said. "It also benefits from the growth of the Boston metropolitan area and technology businesses located there."

Entrepreneurial climate appears to be something that states can change: In 2011, for example, the top 10 entrepreneurial states were dominated by states in the clustered in the northeast and upper Midwest, Two years later, the top 10 included a mix from nearly every geographical region.

Kentucky, ranked fourth highest in 2013, climbed 45 places from its 2012 ranking of 49th.

After several years of losing more businesses than it gained, Kentucky saw a 4.68 percent increase in its number of business establishments in 2013. It's seen a nearly 13 percent gain in number of patents per 1,000 people during the past two years and income levels for non-farm proprietors grew 6 percent in the past year.

"Its economy and entrepreneurs were having trouble adapting to the Great Recession," Thompson said. "But now businesses in Kentucky are bouncing back."