Entrepreneurship (what’s the big Entrepreneurship (what’s the big deal) and the Macroeconomy in the deal) and the Macroeconomy in the

2121stst Century Century

Zoltan J. Acs Ph.DZoltan J. Acs Ph.DGeorge Mason University and George Mason University and

The Kauffman FoundationThe Kauffman FoundationUnderstanding Entrepreneurship: Issues and NumbersUnderstanding Entrepreneurship: Issues and Numbers

OECD Paris, 26-27 October 2005OECD Paris, 26-27 October 2005

What is Economic Development? What is Economic Development?

Attracting new plants (foreign and/or Attracting new plants (foreign and/or domestic). Technology import.domestic). Technology import.

Expanding and retaining existing Expanding and retaining existing businesses. Technology neutral.businesses. Technology neutral.

Starting and growing new businesses. Starting and growing new businesses. Technology export.Technology export.

All of the above.All of the above.

Growth TheoryGrowth Theory

Solow Model (1956)Solow Model (1956)– Economies of scaleEconomies of scale

» Growth comes from new (bigger) plantsGrowth comes from new (bigger) plants

Romer Model (1990)Romer Model (1990)– Externalities (knowledge spillovers)Externalities (knowledge spillovers)

» Growth Comes from new (growing) firmsGrowth Comes from new (growing) firms

1%

6% 6% 6% 6% 5%

13%

2%

8%6%

7% 10%

19%

5%

0%

5%

10%

15%

20%

25%

30%

35%

0-1 years 2-3 years 4-6 years 7-9 years 10-13 yrs 14-18 yrs 19 or older

Years of age in 1996

Pe

r ce

nt o

f to

tal 1

99

5 e

mp

loym

en

t (1

00

.3 m

il) multi-unit locations

single unit firms

Figure A: Figure A: Distributions of 1995 Employment by Age and Type of EstablishmentDistributions of 1995 Employment by Age and Type of Establishment

150%

143%

-36%

-18%-15% -15% -12% -12% -10%

-7%-19% -14% -15% -20%

-75%

-25%

25%

75%

125%

175%

225%

275%

0-1 years 2-3 years 4-6 years 7-9 years 10-13 yrs 14-18 yrs 19 or older

Years of Age in 1996

Pe

r ce

nt

of

tota

l ne

t jo

b g

row

th (

1.8

7 m

il)

multi-unit locations

single unit firms

Figure B:Figure B: 1995-96 Net Job Growth by Age and Type of Establishment 1995-96 Net Job Growth by Age and Type of Establishment

Regional GrowthRegional Growth

394 Labor Market Areas394 Labor Market Areas– Whole U. S.Whole U. S.

Highest Growth EmploymentHighest Growth Employment– St. George, Utah - - 23%St. George, Utah - - 23%– Austin, Texas - - 20.3%Austin, Texas - - 20.3%

Lowest Growth EmploymentLowest Growth Employment– Syracuse, New York - - 0.5%Syracuse, New York - - 0.5%– Poughkeepsie, New York -- 7.4%Poughkeepsie, New York -- 7.4%

Firm Birth Rate and GrowthFirm Birth Rate and GrowthFigure 2: Entrepreneurship and growth 1991-96

R2 = 0.5834

0

2

4

6

8

10

12

-10% 0% 10% 20% 30% 40% 50%

Employment growth

Bir

th r

ate

Regional Employment GrowthRegional Employment Growth

Entrepreneurial ActivityEntrepreneurial Activity (+)(+)– New firmsNew firms (+)(+)– Small firmsSmall firms (+)(+)

Agglomeration EffectsAgglomeration Effects (+)(+)– DensityDensity (+)(+)– SpecializationSpecialization (+)(+)

Human CapitalHuman Capital (+)(+)– High schoolHigh school (+)(+)– CollegeCollege (+)(+)

Explaining Regional Explaining Regional Employment GrowthEmployment Growth

1990-1993; 1993-1996; 1996-19991990-1993; 1993-1996; 1996-1999

Entrepreneurial ActivityEntrepreneurial Activity (+)(+)– New firmsNew firms (+ + +)(+ + +)– Small firmsSmall firms (+ 0 0)(+ 0 0)

Agglomeration EffectsAgglomeration Effects (+)(+)– DensityDensity (- - 0)(- - 0)– SpecializationSpecialization (- - -)(- - -)

Human CapitalHuman Capital (+)(+)– High schoolHigh school (+ + +)(+ + +)– CollegeCollege (0 0 +)(0 0 +)

Age vs SizeAge vs Size

Birch (1970s) Birch (1970s) – Size is important.Size is important.– Fast growth is important.Fast growth is important.

DRS (1980s)DRS (1980s)– Age and size.Age and size.

Davis and Haltiwanger (1990s)Davis and Haltiwanger (1990s)– Age is the key variable.Age is the key variable.

What do new establishments (AGE) What do new establishments (AGE) do?do?

Innovation (Acs and Audretsch).Innovation (Acs and Audretsch). Employment and job creation (Birch and Employment and job creation (Birch and

others).others). Economic Growth (productivity) Davis and Economic Growth (productivity) Davis and

Haltiwanger and others).Haltiwanger and others).

What is Entrepreneurship?What is Entrepreneurship?

Creating knowledge spillovers.Creating knowledge spillovers. A knowledge spillover theory of A knowledge spillover theory of

entrepreneurship (Acs et al).entrepreneurship (Acs et al). Bridge the gap between theories of Bridge the gap between theories of

entrepreneurship and theories of economic entrepreneurship and theories of economic growth.growth.– Opportunity is created endogenously.Opportunity is created endogenously.– Opportunity is exogenous.Opportunity is exogenous.

» Identified and exploited.Identified and exploited.

DataData

We have good data on establishments.We have good data on establishments. We do not have good data on new We do not have good data on new

establishments (plants and firms).establishments (plants and firms). Self employment, new firm start-ups.Self employment, new firm start-ups.

The 21The 21stst Century Century

In the Solow (1956) world data for growth In the Solow (1956) world data for growth was provided by census data on new and was provided by census data on new and existing establishments.existing establishments.– Lower interest rates; Anti-TrustLower interest rates; Anti-Trust

In the Romer (1990) world data for growth In the Romer (1990) world data for growth should be provided by new firms that take should be provided by new firms that take advantage of knowledge spillovers.advantage of knowledge spillovers.– Enabling policies for new firmsEnabling policies for new firms