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Globalization and the Rise of the Entrepreneurial Economy

  • David B. Audretsch

    ()

    (Max Planck Institute of Economics Jena, Research group on Entrepreneurship, Economic Growth and Public Policy)

  • Mark Sanders

    (Max Planck Institute of Economics Jena, Research group on Entrepreneurship, Economic Growth and Public Policy)

This paper argues that globalization has led to a shift in developed countries from an industrial to an entrepreneurial model of production. Globalization is interpreted as a level shock in the supply of unskilled labor to the world economy, a decrease in the level of political risk associated with outward foreign direct investment (offshoring), and the widespread diffusion of a general purpose technology such as ICT. The impact of these exogenous shocks is then analyzed in a variety expansion model that distinguishes among three types of varieties. Following the life cycle we distinguish among new, mature and offshore production. The above shocks all result in a shift in comparative advantage in developed countries towards new varieties which correspond to the early stage of the product life cycle. Moreover, because entrepreneurs serve as agents that move varieties between life cycle stages, their importance increases due to globalization. The many new opportunities for profit benefit entrepreneurs and skilled labor. By contrast, factors of production employed in the mature stages of the life cycle become less important. Thus, the model explains the emergence of what we label an entrepreneurial economy.

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Paper provided by Friedrich-Schiller-University Jena in its series Jena Economic Research Papers with number 2007-003.

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Date of creation: 05 Apr 2007
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Handle: RePEc:jrp:jrpwrp:2007-003
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