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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


De motivating evidence about negative growth

(De)motivating evidence about negative “growth”




10 of the world live in countries that forgot their tfp
10% of the world live in countries before 1985that “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 ? before 1985

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… before 1985

  • 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 before 1985

  • 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 before 1985

    • 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 before 1985

    • 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.


    Towards a model

    Towards a Model before 1985


    Conclusions
    Conclusions before 1985

    • 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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