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International Trade, Foreign Investment, and the Formation of the Entrepreneurial Class

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Author Info
Gene M. Grossman

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Abstract

In this paper, I examine the argument that free trade may be harmful to less developed countries, because such international competition inhibits the formation of a local entrepreneurial class.I view the entrepreneur as the manager of the industrial enterprise, as well as the agent who bears the risks associated with industrial production. A two-sector model of a small open economy is developed in which the size of the entrepreneurial class is endogenous.It is shown that the entrepreneurial class is smaller under free trade than would be first-best optimal in the presence of efficient risk-sharing institutions such as stock markets. Nonetheless, there are potential gains from trade, and any protectionist policy that increases the number of entrepreneurs will have deleterious welfare consequences.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1174.

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Date of creation: Oct 1984
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Handle: RePEc:nbr:nberwo:1174

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kanbur, S M, 1979. "Of Risk Taking and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 769-97, August. [Downloadable!] (restricted)
  2. Kanbur, S. M., 1981. "Risk taking and taxation : An alternative perspective," Journal of Public Economics, Elsevier, vol. 15(2), pages 163-184, April. [Downloadable!] (restricted)
  3. Stiglitz, Joseph E, 1969. "Behavior Towards Risk with Many Commodities," Econometrica, Econometric Society, vol. 37(4), pages 660-67, October. [Downloadable!] (restricted)
  4. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-82, December. [Downloadable!] (restricted)
  5. Jonathan Eaton & Gene M. Grossman, 1985. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 258-72, May. [Downloadable!] (restricted)
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  6. Grossman, Gene M, 1985. "The Optimal Tariff for a Small Country under International Uncertainty: A Comment," Oxford Economic Papers, Oxford University Press, vol. 37(1), pages 154-58, March. [Downloadable!] (restricted)
  7. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August. [Downloadable!] (restricted)
  8. Baldwin, Robert E, 1969. "The Case against Infant-Industry Tariff Protection," Journal of Political Economy, University of Chicago Press, vol. 77(3), pages 295-305, May/June. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David G. Blanchflower & Bruce D. Meyer, 1991. "A Longitudinal Analysis of Young Entrepreneurs in Australia and the United States," NBER Working Papers 3746, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Laura Alfaro & Andrew Charlton, 2007. "International Financial Integration and Entrepreneurial Firm Activity," NBER Working Papers 13118, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Mika Maliranta & Satu Nurmi, 2004. "Do Foreign Players Change the Nature of the Game Among Local Entrepreneurs?," Discussion Papers 942, The Research Institute of the Finnish Economy. [Downloadable!]
  4. Koen De Backer & Leo Sleuwaegen, 2002. "Does foreign direct investment crowd out domestic entrepreneurship?," Vlerick Leuven Gent Management School Working Paper Series 2002-14, Vlerick Leuven Gent Management School. [Downloadable!]
    Other versions:
  5. Seiichi Katayama & Sajal Lahiri & Eiichi Tomiura, 2005. "Cost Heterogeneity and the Destination of Foreign Direct Investment," Discussion Paper Series 166, Research Institute for Economics & Business Administration, Kobe University. [Downloadable!]
  6. Sanjay Banerji & Ngo Van Long, 2001. "Wealth Distribution, Entrepreneurship and Intertemporal Trade," CIRANO Working Papers 2001s-36, CIRANO. [Downloadable!]
  7. Koen de Backer, 2002. "Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?," Economics Working Papers 618, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  8. Laura Alfaro & Andrew Charlton, 2006. "International Financial Integration and Entrepreneurship," CEP Discussion Papers dp0755, Centre for Economic Performance, LSE. [Downloadable!]
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