Interesting Paper on Entrepreneurship and Growth

12 September 2012 at 3:58 pm Peter G. Klein 3 comments

| Peter Klein |

Does entrepreneurship cause economic growth, or do high growth rates stimulate entrepreneurship? Ed Glaeser, Sari Pekkala Kerr, and William Kerr have an interesting new paper that uses the presence of heavy industry to instrument for the population of potential entrepreneurs (using startups as the proxy for entrepreneurship).

Entrepreneurship and Urban Growth: An Empirical Assessment with Historical Mines
Edward L. Glaeser, Sari Pekkala Kerr, William R. Kerr
NBER Working Paper No. 18333, August 2012

Measures of entrepreneurship, such as average establishment size and the prevalence of start-ups, correlate strongly with employment growth across and within metropolitan areas, but the endogeneity of these measures bedevils interpretation. Chinitz (1961) hypothesized that coal mines near Pittsburgh led that city to specialization in industries, like steel, with significant scale economies and that those big firms led to a dearth of entrepreneurial human capital across several generations. We test this idea by looking at the spatial location of past mines across the United States: proximity to historical mining deposits is associated with bigger firms and fewer start-ups in the middle of the 20th century. We use mines as an instrument for our entrepreneurship measures and find a persistent link between entrepreneurship and city employment growth; this connection works primarily through lower employment growth of start-ups in cities that are closer to mines. These effects hold in cold and warm regions alike and in industries that are not directly related to mining, such as trade, finance and services. We use quantile instrumental variable regression techniques and identify mostly homogeneous effects throughout the conditional city growth distribution.

Entry filed under: - Klein -, Entrepreneurship, Recommended Reading.

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3 Comments Add your own

1. mikemarotta | 12 September 2012 at 5:39 pm

Sorry not to be able to read the whole paper, but from the Abstract several limiting factors must be recognized. Large-scale industries will attract into employment people who would otherwise pursue start-ups. (At least that is my hypothesis.)

The culture of mining is antithetical to entrepreneurship because mining in particular is a conservative industry: it can be done by slaves. It is an extractive industry, not a productive one, compared, say, to software development or, for that matter, the making of cheese. On the other hand, Shockley, et al, attempted to create a large-scale enterprise and instead launched the paradigmatic entrepreneurial culture.

By comparison with Pittsburgh, Detroit was a town of large-scale industry which actually spurred entrepreneurship. Tool and die shops, manufacturing assemblies and parts, and support services such as advertising thrived in the heyday, even giving rise to the multi-billion dollar Compu-Ware, a post-industrial firm nurtured by the large scale industrial enterprises it first served.
2. Rafe Champion | 14 September 2012 at 3:06 am

This could be approached using an ecological or biological approach, looking at competition for certain kinds of resources, especially capital and special kinds of labour, symbiotic (partnership) relationships between some industries, parasitic relationships between others, scavengers and bottom feeders, etc.
3. Bruce Koerber | 16 October 2012 at 8:40 pm

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