Entrepreneurship, Liquidity Constraints and Start-up Costs

Raquel Fonseca (), Pierre-Carl Michaud and Thepthida Sopraseuth

Social and Economic Dimensions of an Aging Population Research Papers from McMaster University

Abstract: We study the effects of liquidity constraints and start-up costs on the relationship between wealth and the fraction of entrepreneurs in an economy. We develop a dynamic occupational choice model that yields predictions that can be tested on cross-sectional data with exogenous variation in liquidity constraints (e.g. access to credit) and start-up costs. We use three highly comparable micro datasets (SHARE, ELSA and HRS) focusing on the population age 50+ in 9 countries. These countries have very different levels of start-up costs and potential liquidity constraints. Reduced form results support our theoretical predictions. While higher liquidity constraints yield a steeper wealth profile for the fraction of workers in entrepreneurship, startup costs flatten this relationship by depressing the marginal value of being an entrepreneur as a function of wealth. Countries with high start-up costs such as Italy, Spain and France have flatter wealth gradients.

Keywords: entrepreneurship; liquidity constraints; start-up costs; occupational choice; cross-country comparisons (search for similar items in EconPapers)
JEL-codes: E21 E23 J20 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2007-02
New Economics Papers: this item is included in nep-bec, nep-cse, nep-eec, nep-ent and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:mcm:sedapp:173

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