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Family Firm Connections and Entrepreneurial Human Capital in the Process of Development

Author

Listed:
  • Maria Rosaria Carillo

    () (University of Naples Parthenope)

  • Vincenzo Lombardo

    () (University of Naples Parthenope)

  • Alberto Zazzaro

    () (Universit… Politecnica delle Marche, MoFiR)

Abstract

In this paper we present a new theory accounting for the heterogeneous impact of family firms on economic growth. We develop an overlapping generations model, where agents are heterogeneous in innate talent, and family firms have access to an additional source of managerial capital, family connections, which affects the incentives of the firms' owners to pass on the company within the family and invest in the entrepreneurial human capital of their heirs. Our theory predicts that family firms cluster into heterogeneous groups with different management practices, inducing, at the aggregate level, a misallocation of talent that affects economic growth and the evolution into either a dynamic or a stagnant society, depending on the productivity of family connections in doing business. This heterogeneity in management practices and entrepreneurial human capital explains the different contribution of family firms during industrialization, highlighting the many possible evolutionary patterns for the economy and long-run growth regimes. Consistent with the theory, we provide empirical evidence in favor of the importance of social connectivity among individuals for explaining the difference in management practices between family and non-family firms, and, in turn, the GDP per-capita across countries.

Suggested Citation

  • Maria Rosaria Carillo & Vincenzo Lombardo & Alberto Zazzaro, 2013. "Family Firm Connections and Entrepreneurial Human Capital in the Process of Development," Mo.Fi.R. Working Papers 89, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  • Handle: RePEc:anc:wmofir:89
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Family firms; allocation of talents; economic growth; family connections; technological change;

    JEL classification:

    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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