Working Paper: CEPR ID: DP15143
Authors: Yona Rubinstein; Ross Levine
Abstract: We study the effects of ability and liquidity constraints on entrepreneurship. We develop a three sector Roy model that differentiates between entrepreneurs and other self-employed to address puzzling gaps that have emerged between theory and evidence on entry into entrepreneurship. The model predicts—and the data confirm—that entrepreneurs are positively selected on highly-remunerated cognitive and non-cognitive human capital skills, but other self-employed are negatively selected on those same abilities; entrepreneurs are positively selected on collateral, but other self-employed are not; and entrepreneurship is procyclical, but self-employment is countercyclical.
Keywords: entrepreneurship; human capital; occupational choice; corporate finance; business cycles
JEL Codes: L26; J24; G32; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| entrepreneurs are positively selected on cognitive and noncognitive human capital traits (D29) | higher earnings (J31) |
| liquidity constraints (E41) | entry into entrepreneurship (L26) |
| collateral (G33) | entry into entrepreneurship (L26) |
| liquidity constraints (E41) | entry into other self-employment (L26) |
| entrepreneurship (M13) | self-employment (L26) |