DP5828 Why So Many Local Entrepreneurs?

Author(s): Claudio Michelacci, Olmo Silva
Publication Date: September 2006
Keyword(s): economic and financial development, entrepreneurship, social capital
JEL(s): J23, O12, O16, Z13
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5828

We document that the fraction of entrepreneurs who work in the region where they were born is significantly higher than the corresponding fraction for dependent workers. This difference is more pronounced in more developed regions and positively related to the degree of local financial development. Firms created by locals are more valuable and bigger (in terms of capital and employment), operate with more capital intensive technologies, and are able to obtain greater financing per unit of capital invested, than firms created by non-locals. This evidence suggests that there are so many local entrepreneurs because locals can better exploit the financial opportunities available in the region where they were born. This can help in explaining how local financial development causes persistent disparities in entrepreneurial activity, technology, and income.