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Entrepreneurs, Local Amenities and Growth: A research proposal. Rodrigo Wagner December 1 st , 2008. (De)motivating evidence about negative “growth”. One out of five countries had their peak GDP per capita before 1985. Below the historical peak….

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entrepreneurs local amenities and growth a research proposal

Entrepreneurs, Local Amenities and Growth:A research proposal

Rodrigo Wagner

December 1st , 2008

10 of the world live in countries that forgot their tfp
10% of the world live in countries that “forgot” their TFP
  • 600 million people live in countries
    • where GDP today (2000) is below its 1984 peak.
    • This isn’t small potatoes
  • Questions
    • Why some countries are poorer today than 20 years ago ?
    • How can this happen in a world where technology is growing ?
    • Why some countries take so much time to recover from collapses ?
      • Unlike Germany after WWII
  • Approach:
    • Look at the role of entrepreneurial talent leaving the country
some usual suspects
Some usual suspects ?

Y = A f(k,h)

  • A in the world in higher
  • Barriers to k
  • Overall investment in h is higher.
  • Infrastructure can be rebuilt…
    • And then pay the cost
  • If shadow price of capital (physical or human) is high  One may import it…
  • In general, true for any (tradable) input
  • Conflict ends… but GDP crisis does not
  • There seems to be a permanent loss in TFP

- hysteresis

this channel
This channel…
  • Crisis induces reduction in amenities
    • Public security, for example

2) Entrepreneurs exit the country (or the area):

V(stay local, w) < V(live in “Miami”, w - Cost of moving)

3) Conflict stops, but “coordinators” are not there…

    • It takes a while to build a new pool of entrepreneurs
some micro evidence
Some micro evidence
  • Kidnapping of businessmen reduced investment in Colombian provinces.
      • Pshisva and Suarez (2006)
  • Russian cities disproportionally hit by the Holocaust grew less.
      • Acemoglu, Hassan and Robinson (2008)
  • Entrepreneurship is (very) imperfectly tradable
    • Many local entrepreneurs in Italy
      • Olmo & Michelacci (2004, REStat)
  • African migration … (and return ?)
    • Anecdotal evidence of recent return

(article in EL PAIS)

macro perspective
Macro perspective
  • Talent and allocation of talent
      • Lucas (1978) ; Murphy Shleifer & Vishny (1991).
      • But talent is implicitly tradable
  • Entrepreneurs demand educated people.
      • Dias & McDermontt (2006).
  • Talent and tolerance for delayed gratification emerge from the middle class
      • Acemoglu & Zilibotti (1997)
  • Endogenous migration and growth
    • But here human capital does not depreciate when you leave
      • Braun (1993)
  • Familiarity with foreign economy
      • Goodfriend and McDermontt (1998)
central claims
Central claims
  • Location decisions of entrepreneurs impact the set of available projects.
  • Outward migration of the “entrepreneurial class” reduce long term growth.
    • Why ? Less projects  less spillovers…
  • Restoring amenities for entrepreneurs may attract people able to run businesses.
conclusions
Conclusions
  • Some countries are poorer than before
  • In a world of technological improvement.
  • Did they loose their ability to do business ?
  • Evidence supporting imperfect substitution between local and foreign entrepreneur…
  • How to model ?
  • How relevant ?
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