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Is Entrepreneurship Always Good for Growth?

  • Baochun Peng

    (University of Oxford)

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    Entrepreneurship may not be good for growth. We study the role of entrepreneurship in the context of an endogenous growth model. The exercise of entrepreneurship has two features in our model: (i) Entrepreneurs do not carry out research, instead, they select projects from the researchers, and (ii) Entrepreneurs' ability levels are heterogenous and mutually unobservable. We find that an exogenous rise in the number of high ability entrepreneurs or their ability level may lead to a lower equilibrium growth rate. This negative relationship is caused by the rent seeking element in the exercise of entrepreneurship. Thus our finding challenges the commonly held belief that innovative entrepreneurship is rent creating.

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    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0435.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:0435
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    1. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
    2. Gene M. Grossman & Elhanan Helpman, 1989. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc.
    3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
    4. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
    5. 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.
    6. LeRoy, Stephen F & Singell, Larry D, Jr, 1987. "Knight on Risk and Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 394-406, April.
    7. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October.
    8. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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