1. Entrepreneurship and Economic Development ; Evidence and Explanations Mark Sanders m.sanders@econ.uu.nl and Andre van Stel Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005

2. Introduction Setting the Stage Outlines of the Model Predictions and Testing Conclusions Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005

3. Setting the Stage From empirical evidence… -Kuznets, Schultz, Yamada -Carlsson, Loveman and Sengenberger, Acs et. al. -Carree et. al. …to stylized facts -A U-shaped relationship between GDP and entrepreneurship exists in cross-section and time series data. -Countries do not experience the through at the same point in time or level of GDP. Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005

4. Setting the Stage Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005 Business ownership rate GDP per Capita

5. Setting the Stage Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005

6. Setting the Stage Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005

7. Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005 Outlines of the Model Stage 1: -Entrepreneurial R&D -Discovery of new products -High skill intensity and skilled wages -Low (measured) economic growth Stage 2: -Firm based R&D -Improvement on existing products -Low skill intensity and skilled wages -High (measured) economic growth

8. Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005 Outlines of the Model Set-Up: -standard LOV-preferences -monopolistic competition -rent-seeking drives R&D -2 types of R&D compete for R&D resources -type 1 (entrepreneurial R&D) discovers products -type 2 (firm R&D) develops existing products -all products face life cycle -arbitrage solves R&D allocation in Steady State

9. Predictions and Testing Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005 Predictions: introduction of GPT causes: -shift from firm to entrepreneurial R&D -acceleration in product discovery -higher demand for skilled labour -productivity slowdown -measured slowdown in economic growth -increase in measured entrepreneurial activity -higher start-up and exit rates

10. Predictions and Testing Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005 Predictions: aging of GPT causes: -shift from entrepreneurial to firm R&D -acceleration in product improvements -higher demand for unskilled labour -productivity acceleration -measured acceleration in economic growth -decrease in measured entrepreneurial activity -lower start-up and exit rates

11. Predictions and Testing Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005 Predictions: as GPT’s enter occasionally the observed U-shapes is just part of a wave that characterizes the adjustment to technological breakthroughs. Such waves originate in the technological leader but spread with the new general purpose technology.

12. Predictions and Testing Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005 Preliminary Tests: The model predicts accurately if: -U-shape in GDP-entrepreneurship is universal -technology leader “leads” -follower countries follow as GPT spreads -U-shape is shorter and more shallow in followers -Start-up and exit rates are both high in early stage and low towards the end -Relative wages increase early on and decrease afterwards

13. Predictions and Testing Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005 Data Analysis Results: Patterns in Entrepreneurship confirm ICT was a GPT The US led that GPT Most of the OECD followed Notable exceptions are France, Luxembourg, Norway and Japan Data are flawed, analysis preliminary Results are nonetheless promising

14. Conclusions Presentation by Mark Sanders for G-Forum in Jena, Germany Thursday, November 10th, 2005 Alternating Innovation regimes may explain: relative wage fluctuations productivity slowdown and accelerations dynamics in entrepreneurial activity the link between entrepreneurship and growth With our Model and Analysis: we contribute to modeling such alternating regimes we take some first steps in testing the predictions we explain some puzzling stylized facts we underline the role of entrepreneurs in growth