Small business startups are the most important factor propelling overall state economic growth, according to a recent report released by the Office of Advocacy of the U.S. Small Business Administration (SBA).

The report, Small Business and State Growth: An Econometric Investigation, found that as the number of startups in a state grows, so, too, does that state's gross product, employment rate, and personal income. The report also found that the reverse is true-the demise of small business startups has an equally negative impact on a state's economic growth.

More precisely, increasing small business startups by 5.0% results in a 0.47% increase in gross state product growth, a 0.44% increase in the employment growth rate, and a 0.40% growth in personal income.

"Now, more than ever, state policymakers should be aware of how their decisions affect small business," says SBA Office of Advocacy's Chief Economist Dr. Chad Moutray.

The study also concluded that small business activity in neighboring states does not have a negative impact on a state's own rate of economic growth and actually increases growth in several cases.

According to Giovanni Coratolo, executive director of the U.S. Chamber's Council on Small Business, "This study shows that it is imperative for policymakers to create a positive environment for small businesses to flourish. Lower taxes, small business-friendly regulations, and a reasonable legal climate matter. States that promote small business startups will reap the benefits in the long and short term."

The SBA used U.S. Census Bureau data from 1988 to 2002 to explore the relationships between small business and economic activity at the state level. It examined such indicators as the number of small businesses and their employees as well as the number of newly launched small enterprises and closures.

For a copy of the report, go to www.sba.gov/advo