1. Entrepreneurship in a model of Economic Growth Max Keilbach and Mark Sanders m.sanders@econ.uu.nl Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

2. Introduction Setting the Stage Outlines of the Model Conclusions and Policy Implications Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

3. Setting the Stage The Growth-Hierarchy: Malthusian Population Growth(Food) Solowian Capital Accumulation(Investment) Lucasian Human Capital Accumulation (Education) Romerian Knowledge Accumulation(R&D) Entrepreneurial Knowledge Filter Penetration(Entrepreneurs) Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

4. Setting the Stage “It has long been recognized that the entrepreneurial function is a vital component in the process of economic growth”, Baumol (1968), p. 65. Still Modern Growth Literature… -VE-models (Romer 1990) -QL-models (Aghion and Howitt 1991) -Equivalence (Grossmann and Helpman 1991) …suggests (corporate) R&D is key to growth. Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

5. Setting the Stage Corporate R&D is important but… -R&D aims at “perfective progress” -Growth follows cycles -Industry life-cycle dynamics …the keys to growth are in Entrepreneurship. -Is there a role for Entrepreneurs? -What is it and what are the policy implications? Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

6. Outlines of the Model Economic Growth is a process: Stage 1: -Entrepreneurial Function -Discovery of new products Stage 2: -Firm based R&D -Improvement on existing products Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

7. Outlines of the Model Set-Up: -standard LOV-preferences -monopolistic competition -rent-seeking drives R&D -2 types of R&D compete for R&D resources -type 1 (entrepreneurial R&D) discovers products -type 2 (firm R&D) develops existing products -all products face life cycle -arbitrage solves R&D allocation in Steady State Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

8. The Model Consumers Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

9. The Model Incumbent Producers Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

10. The Model Entrepreneurship Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

11. The Model Corporate R&D Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

12. The Model Equilibrium (static) Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

13. The Model Equilibrium (dynamic) Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

14. The Model Equilibrium (dynamic) RSS NSS LSS N R L Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

15. The Model Policy Implications Corporate R&D is good for growth… …but it is not a sufficient or even a necessary precondition. Entrepreneurship is essential for long-term growth… …and is not a sufficient but a necessary precondition. Knowledge is the ultimate source of growth. Entrepreneurs create opportunities out of knowledge. Entrepreneurs realize opportunities. R&D “merely improves” upon realized opportunities. But makes a more spectacular (measurable) contribution to growth. (As do Solowian capital investments and Malthusian food/health) Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006

16. Conclusions Entrepreneurship is key to the understanding of growth. It allows one to deal with many puzzles in growth. Modeling Entrepreneurship requires “creative reinterpretation” rather than new modeling techniques. Our model can help both the field of entrepreneurship research to focus it’s empirical work and inform progress in new growth theory and long-term economic policy. Presentation by Mark Sanders for EARIE in Amsterdam, Netherlands Amsterdam, NetherlandsSunday, August 27, 2006