NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Selection into Entrepreneurship and Self-Employment

Ross Levine, Yona Rubinstein

NBER Working Paper No. 25350
Issued in December 2018
NBER Program(s):Economic Fluctuations and Growth, Productivity, Innovation, and Entrepreneurship

We study the effects of ability and liquidity constraints on entrepreneurship. We develop a three sector Roy model that differentiates between entrepreneurs and other self-employed to address puzzling gaps that have emerged between theory and evidence on entry into entrepreneurship. The model predicts—and the data confirm—that entrepreneurs are positively selected on highly-remunerated human capital, but other self-employed are negatively selected on those same abilities; entrepreneurs are positively selected on collateral, but other self-employed are not; and entrepreneurship is procyclical, but self-employment is countercyclical.

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Document Object Identifier (DOI): 10.3386/w25350

 
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