Who Creates New Firms When Local Opportunities Arise?

Wednesday, 19 September, 2018
Abstract: 
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, Bernstein, Colonnelli, Malacrino and McQuade (2018) identify local demand shocks by linking fluctuations in global commodity prices to municipality level agricultural endowments in Brazil. The authors 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, they 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.