Working Paper: CEPR ID: DP5828
Authors: Claudio Michelacci; Olmo Silva
Abstract: 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.
Keywords: economic development; financial development; entrepreneurship; social capital
JEL Codes: J23; O12; O16; Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local bias in entrepreneurship (LBE) (L26) | larger firms (L25) |
| local bias in entrepreneurship (LBE) (L26) | more capital-intensive firms (D25) |
| local bias in entrepreneurship (LBE) (L26) | greater financing per unit of capital (G32) |
| local financial development (O29) | local bias in entrepreneurship (LBE) (L26) |
| social capital (Z13) | entrepreneurship (M13) |
| local conditions (C62) | local bias in entrepreneurship (LBE) (L26) |