  How can governments attract entrepreneurs and their businesses? The view that
new business creation grows with the optimal level of government investments
remains appealing to policymakers. In contrast with this active approach, we
build a model where governments may adopt a passive approach to stimulating
business creation. The insights from this model suggest new business creation
depends positively on factors beyond government investments--attracting
high-skilled migrants to the region and lower property prices, taxes, and fines
on firms in the informal sector. These findings suggest whether entrepreneurs
generate business creation in the region does not only depend on government
investments. It also depends on location and skilled migration. Our model also
provides methodological implications--the relationship between government
investments and new business creation is endogenously determined, so unless
adjustments are made, econometric estimates will be biased and inconsistent. We
conclude with policy and managerial implications.
