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The Divide between Subsistence and Transformational Entrepreneurship

In: Innovation Policy and the Economy, Volume 10

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  • Antoinette Schoar

Abstract

This paper argues that it is crucially important to differentiate between two very distinct sets of entrepreneurs: subsistence and transformational entrepreneurs. Recent evidence suggests that people engaging in these two types of entrepreneurship are not only very distinct in nature but that only a negligible fraction of them transition from subsistence to transformational entrepreneurship. These individuals vary in their economic objectives, their skills, and their role in the economy. Most important, they seem to respond very differently to policy changes and economic cycles. Yet most development policies aimed at fostering entrepreneurship focus on subsistence entrepreneurship in the hope of creating transformational entrepreneurs. I argue that unless we understand the differences between those two types of entrepreneurs more clearly, many policy interventions may have unintended consequences and may even have an adverse impact on the economy.
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Suggested Citation

  • Antoinette Schoar, 2010. "The Divide between Subsistence and Transformational Entrepreneurship," NBER Chapters,in: Innovation Policy and the Economy, Volume 10, pages 57-81 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:11765
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    1. Eric J. Bartelsman & John Haltiwanger & Stefano Scarpetta, 2004. "Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries," Tinbergen Institute Discussion Papers 04-114/3, Tinbergen Institute.
    2. Camilo Mondragón-Vélez & Ximena Peña, 2010. "Business Ownership and Self-Employment in Developing Economies: The Colombian Case," NBER Chapters,in: International Differences in Entrepreneurship, pages 89-127 National Bureau of Economic Research, Inc.
    3. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
    4. Marianne Bertrand & Antoinette Schoar & David Thesmar, 2007. "Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985," Journal of Finance, American Finance Association, vol. 62(2), pages 597-628, April.
    5. Acs, Zoltan J & Audretsch, David B, 1988. "Innovation in Large and Small Firms: An Empirical Analysis," American Economic Review, American Economic Association, vol. 78(4), pages 678-690, September.
    6. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    7. Josh Lerner & Antoinette Schoar, 2010. "International Differences in Entrepreneurship," NBER Books, National Bureau of Economic Research, Inc, number lern08-2, June.
    8. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
    9. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2008. "Who are the microenterprise owners ? Evidence from Sri Lanka on Tokman v. de Soto," Policy Research Working Paper Series 4635, The World Bank.
    10. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
    11. Takatoshi Ito & Andrew K. Rose, 2009. "Financial Sector Development in the Pacific Rim, East Asia Seminar on Economics, Volume 18," NBER Books, National Bureau of Economic Research, Inc, number ito_07-2, June.
    12. Silvia Ardagna & Annamaria Lusardi, 2010. "Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints," NBER Chapters,in: International Differences in Entrepreneurship, pages 17-62 National Bureau of Economic Research, Inc.
    13. Rajkamal Iyer & Antoinette Schoar, 2010. "Are there Cultural Determinants of Entrepreneurship?," NBER Chapters,in: International Differences in Entrepreneurship, pages 209-240 National Bureau of Economic Research, Inc.
    14. Suresh de Mel & David McKenzie & Christopher Woodruff, 2009. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 423-423.
    15. Ana María Herrera & Eduardo Lora, 2005. "Why So Small? Explaining the Size of Firms in Latin America," The World Economy, Wiley Blackwell, vol. 28(7), pages 1005-1028, July.
    16. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
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    Cited by:

    1. Philippe Aghion & Ufuk Akcigit & Matthieu Lequien & Stefanie Stantcheva, 2017. "Tax Simplicity and Heterogeneous Learning," NBER Working Papers 24049, National Bureau of Economic Research, Inc.
    2. Decker, Ryan A. & Haltiwanger, John & Jarmin, Ron S. & Miranda, Javier, 2016. "Where has all the skewness gone? The decline in high-growth (young) firms in the U.S," European Economic Review, Elsevier, vol. 86(C), pages 4-23.
    3. repec:eee:respol:v:47:y:2018:i:3:p:637-649 is not listed on IDEAS
    4. Mary Hallward-Driemeier, 2013. "Enterprising Women : Expanding Economic Opportunities in Africa," World Bank Publications, The World Bank, number 13785.
    5. Duranton, Gilles & Venables, Anthony J, 2018. "Place-Based Policies for Development," CEPR Discussion Papers 12889, C.E.P.R. Discussion Papers.
    6. repec:eee:wdevel:v:105:y:2018:i:c:p:400-415 is not listed on IDEAS
    7. repec:gam:jsusta:v:9:y:2017:i:10:p:1689-:d:112786 is not listed on IDEAS
    8. Joshua D. Gottlieb & Richard R. Townsend & Ting Xu, 2016. "Experimenting with Entrepreneurship: The Effect of Job-Protected Leave," NBER Working Papers 22446, National Bureau of Economic Research, Inc.
    9. Hugo Kantis & Juan Federico & Luis A. Trajtenberg, 2012. "Latin American Middle-Class Entrepreneurs and their Firms: A Regional View and International Comparison," IDB Publications (Working Papers) 4041, Inter-American Development Bank.
    10. repec:eee:labeco:v:47:y:2017:i:c:p:64-74 is not listed on IDEAS
    11. Sari Pekkala Kerr & William R. Kerr & Tina Xu, 2017. "Personality Traits of Entrepreneurs: A Review of Recent Literature," NBER Working Papers 24097, National Bureau of Economic Research, Inc.
    12. Diego Aboal & Federico Veneri, 2016. "Entrepreneurs in Latin America," Small Business Economics, Springer, vol. 46(3), pages 503-525, March.

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