David Audretsch

1
Globalization and the Rise of the Entrepreneurial
Economy
David Audretsch Max Planck Institute of
Economics, Jena Germany and Mark Sanders Max
Planck Institute of Economics, Jena,
Germany Utrecht School of Economics, Utrecht,
Netherlands m.sanders_at_econ.uu.nl
2
Motivation
Motivation
Cause and Effect? -Globalization and
Technology Political and Technological
Revolutions 1980-2000 -Rising Skill Premia in
OECD e.g. KatzAutor (1999), NickellBell
(1992) -Increasing importance of
Outsourcing e.g. FeenstraHanson (1999,
2001) -Rise of the Entrepreneurial
Society e.g. Audretsch (2006)
3
Motivation
Motivation
This paper develops a framework for analysis in
which Technology drives trade patterns and
comparative advantage drives technical
change and the interaction explains
observed trade and labour market trends in
North(West) and South(East).
4
The Model
The Model
South
North
Invention
Development
Outsourcing
EI
EO
ED
nNH
nNL
nSL
LNH(wNH)
LSL(wSL)
LNL(wNL)
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The Basic Model
The Model
Basic Demand Structure as in Krugman (1979) and
Grossman and Helpman (1991)

• Consumers
• Identical CIES
• Savings
• Identical LOV
• Iso-Elastic Demand

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The Basic Model
The Model
Basic Production Structure as in Grossman and
Helpman (1991)

• Producers
• Monopolistic CompetitionLinear Production
  Function in L
• Price is set as fixed mark-up over wage
• Profits are positive
• Not 2 (GH, 1991) but 3 different types of labor,
  LNH, LNL and LSL
• not 2 but 3 wage, price and profit levels
• not 1 but 2 potential binding price constraints
• not 2 but 4 constellations of price, wage and
  profit levels

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The Static Equilibrium
The Model
wNH
wNL
LNH
LNL
LNL
LNH
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The Dynamic Model
The Model
How do Entrepreneurs move products over the life
cycle?

• Entrepreneurs Invent, Develop and Outsource
  according to

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The Dynamic Model
The Model
Why do Entrepreneurs move products over the life
cycle?

• Entrepreneurs Invent, Develop and Outsource to
  gain

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The Dynamic Model
The Model
E
E
G
E
ED
EI
EO
EI
ED
EO
wT
wT
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The Dynamic Model
The Shocks

• Comparative Statics
• Higher LSL (Globalisation)
• Reduces wages in South
• Increases income/profits in South
• Re-allocates Entrepreneurs towards outsourcing
• Increases rate of outsourcing
• Causes higher SS size of foreign sector
• Reduces low skilled wages/employment in North
• Reduces wages in South
• Increases returns to Entrepreneurship

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The Dynamic Model
The Shocks

• Comparative Statics
• Higher nA or g (General Purpose Technology)
• Increases productivity of Innovators
• Re-allocates Entrepreneurs towards innovating
• Increases rate of innovation
• Causes higher SS size of new sector
• Increases high skilled wages/employment in North
• Increases intra- and international income
  inequality
• Increases returns to Entrepreneurship

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The Dynamic Model
The Shocks

• Comparative Statics
• Higher ? (Reduction in Risk)
• Reduces discount rate for outsourcing
• Re-allocates Entrepreneurs towards outsourcing
• Increases rate of outsourcing
• Causes higher SS size of foreign sector
• Decreases low skilled wages/employment in North
• Increases wages in South
• Increases returns to Entrepreneurship

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Policy Implications
Policy Issues
Income Inequality vs Wage Inequality Impact of
Entrepreneurship and RD Policy Intranational vs
International Wage Inequality The Entrepreneurial
vs Industrial Economy Comparative Advantages in
Entrepreneurship
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Concluding Remarks
Policy Implications
Managing globalization poses the biggest 21st
century challenge to policy makers. Western
politicians should focus on entrepreneurship
policies, not only to maximise growth at home but
also to moderate wage divergence and build
comparative advantage. Smart redistribution is
necessary to make globalization a
pareto-improvement.