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Transformative and Subsistence Entrepreneurs: Origins and Impacts on Economic Growth
Abstract: This paper studies how individuals sort into entrepreneurship and invention-related occupations and how their interactions shape innovation and economic growth. We develop an endogenous growth model in which occupational sorting jointly determines the supply of R&D talent and entrepreneurs’ demand for it. Empirically, using Danish microdata, we show that transformative entrepreneurs—those who hire R&D workers—tend to have higher IQ and education and build faster-growing firms than other entrepreneurs. Quantitatively, the estimated model indicates that financial barriers to education misallocate talent; alleviating them through education subsidies increases both demand and supply of R&D workers, raising innovation and long-run growth. Broad startup subsidies are ineffective.
JEL Classification: O31; O38; O47; J24;
https://doi.org/10.59576/sr.1166
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Staff Reports
Publication Date: 2025-09-01
Number: 1166