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Transformative and Subsistence Entrepreneurs: Origins and Impacts on Economic Growth

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Abstract

This paper studies how individuals sort into entrepreneurship and invention-related occupations and how their interactions shape innovation and economic growth. We develop an endogenous growth model in which occupational sorting jointly determines the supply of R&D talent and entrepreneurs’ demand for it. Empirically, using Danish microdata, we show that transformative entrepreneurs—those who hire R&D workers—tend to have higher IQ and education and build faster-growing firms than other entrepreneurs. Quantitatively, the estimated model indicates that financial barriers to education misallocate talent; alleviating them through education subsidies increases both demand and supply of R&D workers, raising innovation and long-run growth. Broad startup subsidies are ineffective.

Suggested Citation

  • Ufuk Akcigit & Harun Alp & Jeremy Pearce & Marta Prato, 2025. "Transformative and Subsistence Entrepreneurs: Origins and Impacts on Economic Growth," Staff Reports 1166, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:101780
    DOI: 10.59576/sr.1166
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    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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