Trade and Entrepreneurship with Heterogeneous Workers

Daisuke Oyama (), Yasuhiro Sato, Takatoshi Tabuchi () and Jacques François Thisse ()

No 6567, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper investigates the impacts of progressive trade openness, technological externalities, and heterogeneity of individuals on the formation of entrepreneurship in a two-country occupation choice model. We show that trade opening gives rise to a non-monotonic process of international specialization, in which the share of entrepreneurial firms in the large (small) country first increases (decreases) and then decreases (increases), with the global economy exhibiting first de-industrialization and then re-industrialization. When countries have the same size, we also show that strong technological externalities make the symmetric equilibrium unstable, generating equilibrium multiplicity, while sufficient heterogeneity of individuals leads to the stability and uniqueness of the symmetric equilibrium.

Keywords: entrepreneurship; externality; heterogeneity; stability; trade liberalization (search for similar items in EconPapers)
JEL-codes: F12 F16 J24 O14 R12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-ent and nep-int
Date: 2007-11
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