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Entrepreneurs, Local Amenities and Growth: A research proposal

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

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  1. Entrepreneurs, Local Amenities and Growth:A research proposal Rodrigo Wagner December 1st , 2008

  2. (De)motivating evidence about negative “growth”

  3. One out of five countries had their peak GDP per capita before 1985

  4. Below the historical peak…

  5. 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

  6. 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

  7. 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

  8. 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)

  9. 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)

  10. 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.

  11. Towards a Model

  12. 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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