Is Entrepreneurship Always Good for Growth?

Baochun Peng
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Baochun Peng: University of Oxford

No 435, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: Entrepreneurship may not be good for growth. We study the role of entrepreneurship in the context of an endogenous growth model. The exercise of entrepreneurship has two features in our model: (i) Entrepreneurs do not carry out research, instead, they select projects from the researchers, and (ii) Entrepreneurs' ability levels are heterogenous and mutually unobservable. We find that an exogenous rise in the number of high ability entrepreneurs or their ability level may lead to a lower equilibrium growth rate. This negative relationship is caused by the rent seeking element in the exercise of entrepreneurship. Thus our finding challenges the commonly held belief that innovative entrepreneurship is rent creating.

Date: 2000-08-01
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