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Entrepreneurship and Occupational Choice in the Global Economy

Author

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  • Federico Diez

    (Federal Reserve Bank of Boston)

  • Ali Ozdagli

    (Federal Reserve Bank of Boston)

Abstract

This paper studies the effects of trade costs and foreign competition on entrepreneurship. We begin by pointing out a previously unknown fact: the higher the trade costs, the smaller the fraction of entrepreneurs. This fact holds across countries and across industries within the United States. We develop a model where heterogeneous agents select themselves into being either employees or self-employed entrepreneurs in the spirit of \citet{lucas:78}. This, in turn, translates into intra-industry firm heterogeneity as in \citet{melitz:03}. Self-employed agents (firms) can also decide to enter into the export markets, subject to fixed and variable trade costs. The model delivers three basic predictions: (i) domestic self-employment increases with the trade costs of exporting from a foreign country to the home country, (ii) domestic self-employment increases with the trade costs of exporting to the foreign country, (iii) higher levels of self-employment are associated with a lower fraction of exporting firms. Our empirical work on inter-industry data for the United States corroborates these predictions of the model.

Suggested Citation

  • Federico Diez & Ali Ozdagli, 2012. "Entrepreneurship and Occupational Choice in the Global Economy," 2012 Meeting Papers 1004, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:1004
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    File URL: https://economicdynamics.org/meetpapers/2012/paper_1004.pdf
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    References listed on IDEAS

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    1. 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 808-827, August.
    2. Luis Garicano & Esteban Rossi-Hansberg, 2006. "The Knowledge Economy at the Turn of the Twentieth Century: The Emergence of Hierarchies," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 396-403, 04-05.
    3. Parker,Simon C., 2009. "The Economics of Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521728355, March.
    4. Monte, Ferdinando, 2011. "Skill bias, trade, and wage dispersion," Journal of International Economics, Elsevier, vol. 83(2), pages 202-218, March.
    5. Ariel Burstein & Jonathan Vogel, 2010. "Globalization, Technology, and the Skill Premium: A Quantitative Analysis," NBER Working Papers 16459, National Bureau of Economic Research, Inc.
    6. Parker,Simon C., 2009. "The Economics of Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521899604, March.
    7. Franziska Ohnsorge & Daniel Trefler, 2007. "Sorting It Out: International Trade with Heterogeneous Workers," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 868-892, October.
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