Who Creates New Firms When Local Opportunities Arise?

74 Pages Posted: 16 Oct 2018

See all articles by Shai Bernstein

Shai Bernstein

Stanford Graduate School of Business

Emanuele Colonnelli

University of Chicago - Booth School of Business

Davide Malacrino

International Monetary Fund

Timothy McQuade

Stanford University

Multiple version iconThere are 2 versions of this paper

Date Written: September 2018

Abstract

New firm formation is a critical driver of job creation, and an important contributor to the responsiveness of the economy to aggregate shocks. In this paper we examine the characteristics of the individuals who become entrepreneurs when local opportunities arise due to an increase in local demand. We identify local demand shocks by linking fluctuations in global commodity prices to municipality level agricultural endowments in Brazil. We find that the firm creation response is almost entirely driven by young and skilled individuals, as measured by their level of experience, education, and past occupations involving creativity, problem-solving and managerial roles. In contrast, we find no such response within the same municipalities among skilled, yet older individuals, highlighting the importance of life cycle considerations. These responsive individuals are younger and more skilled than the average entrepreneur in the population. The entrepreneurial response of young individuals is larger in municipalities with better access to finance, and in municipalities with more skilled human capital. These results highlight how the characteristics of the local population can have a significant impact on the entrepreneurial responsiveness of the economy.

Keywords: Brazil, Commodities, Western Hemisphere, Entrepreneurship, Firms, Financial Development

JEL Classification: L26

Suggested Citation

Bernstein, Shai and Colonnelli, Emanuele and Malacrino, Davide and McQuade, Timothy, Who Creates New Firms When Local Opportunities Arise? (September 2018). IMF Working Paper No. 18/215. Available at SSRN: https://ssrn.com/abstract=3267239

Shai Bernstein (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Emanuele Colonnelli

University of Chicago - Booth School of Business ( email )

HOME PAGE: http://emanuelecolonnelli.com

Davide Malacrino

International Monetary Fund ( email )

700 19th St NW
Washington, DC 20001
United States

Timothy McQuade

Stanford University ( email )

Stanford, CA 94305
United States

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