Entrepreneurship (what’s the big deal) and the Macroeconomy in the 21 st Century Entrepreneurship (what’s the big deal) and the Macroeconomy in the 21 st Century Zoltan J. Acs Ph.D George Mason University and The Kauffman Foundation Understanding Entrepreneurship: Issues and Numbers OECD Paris, October 2005

What is Economic Development? Attracting new plants (foreign and/or domestic). Technology import. Attracting new plants (foreign and/or domestic). Technology import. Expanding and retaining existing businesses. Technology neutral. Expanding and retaining existing businesses. Technology neutral. Starting and growing new businesses. Technology export. Starting and growing new businesses. Technology export. All of the above. All of the above.

Growth Theory Solow Model (1956) Solow Model (1956) –Economies of scale »Growth comes from new (bigger) plants Romer Model (1990) Romer Model (1990) –Externalities (knowledge spillovers) »Growth Comes from new (growing) firms

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

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

Regional Growth 394 Labor Market Areas 394 Labor Market Areas –Whole U. S. Highest Growth Employment Highest Growth Employment –St. George, Utah % –Austin, Texas % Lowest Growth Employment Lowest Growth Employment –Syracuse, New York % –Poughkeepsie, New York %

Firm Birth Rate and Growth

Regional Employment Growth Entrepreneurial Activity(+) Entrepreneurial Activity(+) –New firms(+) –Small firms(+) Agglomeration Effects(+) Agglomeration Effects(+) –Density(+) –Specialization(+) Human Capital(+) Human Capital(+) –High school(+) –College(+)

Explaining Regional Employment Growth ; ; Entrepreneurial Activity(+) Entrepreneurial Activity(+) –New firms(+ + +) –Small firms(+ 0 0) Agglomeration Effects(+) Agglomeration Effects(+) –Density(- - 0) –Specialization(- - -) Human Capital(+) Human Capital(+) –High school(+ + +) –College(0 0 +)

Age vs Size Birch (1970s) Birch (1970s) –Size is important. –Fast growth is important. DRS (1980s) DRS (1980s) –Age and size. Davis and Haltiwanger (1990s) Davis and Haltiwanger (1990s) –Age is the key variable.

What do new establishments (AGE) do? Innovation (Acs and Audretsch). Innovation (Acs and Audretsch). Employment and job creation (Birch and others). Employment and job creation (Birch and others). Economic Growth (productivity) Davis and Haltiwanger and others). Economic Growth (productivity) Davis and Haltiwanger and others).

What is Entrepreneurship? Creating knowledge spillovers. Creating knowledge spillovers. A knowledge spillover theory of entrepreneurship (Acs et al). A knowledge spillover theory of entrepreneurship (Acs et al). Bridge the gap between theories of entrepreneurship and theories of economic growth. Bridge the gap between theories of entrepreneurship and theories of economic growth. –Opportunity is created endogenously. –Opportunity is exogenous. »Identified and exploited.

Data We have good data on establishments. We have good data on establishments. We do not have good data on new establishments (plants and firms). We do not have good data on new establishments (plants and firms). Self employment, new firm start-ups. Self employment, new firm start-ups.

The 21 st Century In the Solow (1956) world data for growth was provided by census data on new and existing establishments. In the Solow (1956) world data for growth was provided by census data on new and existing establishments. –Lower interest rates; Anti-Trust In the Romer (1990) world data for growth should be provided by new firms that take advantage of knowledge spillovers. In the Romer (1990) world data for growth should be provided by new firms that take advantage of knowledge spillovers. –Enabling policies for new firms