Who Creates New Firms When Local Opportunities Arise?

By Shai Bernstein, Emanuele Colonnelli, Davide Malacrino, Tim McQuade

September 28, 2018

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Format: Chicago

Shai Bernstein, Emanuele Colonnelli, Davide Malacrino, and Tim McQuade. Who Creates New Firms When Local Opportunities Arise?, (USA: International Monetary Fund, 2018) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

New firm formation is a critical driver of job creation, and an important contributor to the responsiveness of the economy to aggregate shocks. In this paper we examine the characteristics of the individuals who become entrepreneurs when local opportunities arise due to an increase in local demand. We identify local demand shocks by linking fluctuations in global commodity prices to municipality level agricultural endowments in Brazil. We find that the firm creation response is almost entirely driven by young and skilled individuals, as measured by their level of experience, education, and past occupations involving creativity, problem-solving and managerial roles. In contrast, we find no such response within the same municipalities among skilled, yet older individuals, highlighting the importance of lifecycle considerations. These responsive individuals are younger and more skilled than the average entrepreneur in the population. The entrepreneurial response of young individuals is larger in municipalities with better access to finance, and in municipalities with more skilled human capital. These results highlight how the characteristics of the local population can have a significant impact on the entrepreneurial responsiveness of the economy.

Subject: Commodities, Economic sectors, Employment, Financial crises, Labor, Labor force, Population and demographics, Self-employment

Keywords: Commodities, Created firm, Creation response, Employment, Entrepreneurship, Experience distribution, Fertility rate, Financial Development, Firm creation rate, Firm entry response, Firms, Global, Heterogeneous firm, Labor force, Marginal revenue, Self-employment, Time series

Publication Details

Pages:

73
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/215
Stock No:

WPIEA2018215
ISBN:

9781484377833
ISSN:

1018-5941

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