Refined by Fire: The Great Depression and Entrepreneurship

46 Pages Posted: 14 May 2019 Last revised: 3 Apr 2020

See all articles by Christos Makridis

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Erin McGuire

Scheller College of Business, Georgia Institute of Technology

Date Written: July 24, 2019

Abstract

Industrial production in the United States declined by 47 percent between 1929 and 1933. This paper quantifies how the severity of the Great Depression within a location may affect contemporaneous entrepreneurship rates. On one hand, a more severe decline in productivity could have persistent effects that adversely affect entrepreneurship today. On the other hand, a more severe decline could have prompted individuals growing up during the Great Depression to become more entrepreneurial and frugal, thereby influencing the values they emphasized to their children. Consistent with the latter hypothesis, we find that a one percentage point increase in retail sales growth is associated with a 0.04 percentage point decline in entrepreneurship two generations later. Using the Panel Study of Income Dynamics, we explore the role of personal experience and upbringing as a moderating factor, finding that individuals in areas more affected by the Depression are more financially sophisticated.

Keywords: Entrepreneurship; Growth; Great Depression; Behavioral Finance

JEL Classification: O4, E71, N12, E21

Suggested Citation

Makridis, Christos and McGuire, Erin, Refined by Fire: The Great Depression and Entrepreneurship (July 24, 2019). Available at SSRN: https://ssrn.com/abstract=3371991 or http://dx.doi.org/10.2139/ssrn.3371991

Christos Makridis (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Erin McGuire

Scheller College of Business, Georgia Institute of Technology ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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