CRIEFF Discussion Paper Number 0024

Is Entrepreneurship Always Good for Growth?

Baochun Peng

Abstract
Entrepreneurship may not be good for growth. We study the role of entrepreneurship in the context of an endogenous growth model. the exercise of entrepreneurship has two features in our model: (i) Entrepreneurs do not carry out research, instead, they select projects from the researchers, and (ii) Entrepreneurs' ability levels are heterogeneous and mutually unobservable. We find that an exogenous rise in the number of high ability entrepreneurs or their ability level may lead to a lower equilibrium growth rate. This negative relationship is caused by the rent seeking element in the exercise of entrepreneurship. Thus our finding challenges the commonly held belief that innovative entrepreneurship is rent creating.

JEL Classifications
M13, O31, O32

Keywords
Growth, Entrepreneurship, Innovation

Baochun Peng
University of St Andrews

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