ESSAYS IN THE ECONOMICS OF ENTREPRENEURSHIP

This dissertation consists of three essays in the economics of entrepreneurship, with the overall goal to add value to the literature on the role of liquidity
constraints, start-up costs and employment protection policies, in explaining entrepreneurial dynamism and the occupational choice of individuals.
The first essay exploits individual level data from 3 uniquely comparable
surveys (SHARE, ELSA and HRS) in Europe and the United States, as well as the
World Bank’s Doing Business data, to empirically investigate the impact of startup costs on the self-employment-wealth relationship. The longitudinal nature
of the data enables us to investigate potential effects of the last global financial
crisis. Results confirm the strong positive relationship between the entrepreneurial
choice and wealth. We also find that start-up costs flatten this relationship,
which suggests that entry regulations decrease the marginal value of wealth for
entrepreneurial entry, under liquidity constraints. Interestingly, although there
is no strong evidence that wealth in itself played a bigger role during the crisis,
we find that the negative impact of start-up costs on the entrepreneurship-wealth
relationship proved to be significantly pronounced during the last crisis.
The second essay provides robust international evidence on the macroeconomic impact of bank competition on new business creation. Previous research
has shown that the stock market, due to its liquidity externalities, stimulates
business creation by allowing and expediting the recycling of “informed capital”
supplied to new start-ups by financial intermediaries. Building on the complementarity between banks and stock markets in the business creation process, we
evaluate in a unifying framework, the extent of two competing theories of bank
competition effects on entrepreneurial financing. We find that, in line with the
market power hypothesis, bank competition has an overall beneficial impact on
new business density by boosting credit access to new entrepreneurs. Yet, consistent with the information hypothesis, this result attenuates as the size of the
stock market increases, due to the importance of relationship lending underlying
the informed capital recycling.
The third essay studies the effects of firing costs and start-up costs incurred
by new entrepreneurs, on the occupational choice in a dynamic general equilibrium
model with borrowing constraints and a non-entrepreneurial sector that allows for
endogenous entry and exit of corporate firms, as well as labor adjustment across
periods. We find that a tax on job destruction at the corporate firm level increases
the steady state entrepreneurship rate by prompting the transition of workers into
entrepreneurship and decreasing the proportion of exiting entrepreneurs. This
is because the firing tax has a negative impact on labor productivity and the
equilibrium wage rate, leading to significant welfare losses for workers. Startup costs significantly lessen the impact of the firing tax on entrepreneurship as
they make the transition into entrepreneurship very cumbersome in a financially
constrained environment.