Entrepreneurship (what’s the big
deal) and the Macroeconomy in the
21st Century
Zoltan J. Acs Ph.D
George Mason University and
The Kauffman Foundation
Understanding Entrepreneurship: Issues and Numbers
OECD Paris, 26-27 October 2005
What is Economic Development?
Attracting new plants (foreign and/or
domestic). Technology import.
 Expanding and retaining existing
businesses. Technology neutral.
 Starting and growing new businesses.
Technology export.
 All of the above.

Growth Theory

Solow Model (1956)
– Economies of scale
» Growth comes from new (bigger) plants

Romer Model (1990)
– Externalities (knowledge spillovers)
» Growth Comes from new (growing) firms
Figure A:
Distributions of 1995 Employment by Age and Type of Establishment
Per cent of total 1995 employment (100.3 mil)
35%
30%
multi-unit locations
single unit firms
25%
19%
20%
15%
8%
10%
5%
6%
7%
10%
13%
5%
0%
2%
1%
0-1 years
6%
6%
2-3 years
4-6 years
6%
6%
7-9 years
10-13 yrs
Years of age in 1996
5%
14-18 yrs
19 or older
Figure B:
1995-96 Net Job Growth by Age and Type of Establishment
Per cent of total net job growth (1.87 mil)
275%
225%
143%
multi-unit locations
175%
single unit firms
125%
75%
150%
25%
-15%
-25%
-7%
-12%
-12%
-10%
-19%
-14%
-15%
-20%
4-6 years
7-9 years
10-13 yrs
14-18 yrs
-15%
-18%
-36%
-75%
0-1 years
2-3 years
Years of Age in 1996
19 or older
Regional Growth

394 Labor Market Areas
– Whole U. S.

Highest Growth Employment
– St. George, Utah - - 23%
– Austin, Texas - - 20.3%

Lowest Growth Employment
– Syracuse, New York - - 0.5%
– Poughkeepsie, New York -- 7.4%
Firm Birth Rate and Growth
Figure 2: Entrepreneurship and growth 1991-96
12
2
R = 0.5834
10
Birth rate
8
6
4
2
0
-10%
0%
10%
20%
30%
40%
50%
Employment growth
Regional Employment Growth

Entrepreneurial Activity
– New firms
– Small firms


(+)
(+)
Agglomeration Effects
– Density
– Specialization
(+)
(+)
(+)
Human Capital
– High school
– College
(+)
(+)
(+)
(+)
Explaining Regional
Employment Growth
1990-1993;

(+)
(- - 0)
(- - -)
Human Capital
– High school
– College
(+)
(+ + +)
(+ 0 0)
Agglomeration Effects
– Density
– Specialization

1996-1999
Entrepreneurial Activity
– New firms
– Small firms

1993-1996;
(+)
(+ + +)
(0 0 +)
Age vs Size

Birch (1970s)
– Size is important.
– Fast growth is important.

DRS (1980s)
– Age and size.

Davis and Haltiwanger (1990s)
– Age is the key variable.
What do new establishments (AGE)
do?
Innovation (Acs and Audretsch).
 Employment and job creation (Birch and
others).
 Economic Growth (productivity) Davis and
Haltiwanger and others).

What is Entrepreneurship?
Creating knowledge spillovers.
 A knowledge spillover theory of
entrepreneurship (Acs et al).
 Bridge the gap between theories of
entrepreneurship and theories of economic
growth.

– Opportunity is created endogenously.
– Opportunity is exogenous.
» Identified and exploited.
Data
We have good data on establishments.
 We do not have good data on new
establishments (plants and firms).
 Self employment, new firm start-ups.

The 21st Century

In the Solow (1956) world data for growth
was provided by census data on new and
existing establishments.
– Lower interest rates; Anti-Trust

In the Romer (1990) world data for growth
should be provided by new firms that take
advantage of knowledge spillovers.
– Enabling policies for new firms