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Entrepreneurs, Firms and the Macroeconomy

Project description

The role of entrepreneurs in start-up success

The role of young firms in the economy today is significant. However, micro-level data show considerable heterogeneity among firms, with only a small part of start-ups growing, while the majority fail to survive. The EU-funded MacroEntrepreneurs project will study the link between entrepreneurs, firms and the macroeconomy. It will estimate to what extent growth and survival are predictable and related to entrepreneur characteristics. In addition, it will use empirical evidence to establish a new macroeconomic pattern of firm dynamics in which growth and survival depend on heterogeneous founders. The project will address issues and questions such as the impact of wealth inequality on the decision to start a firm and how policy can enhance the creation of high-growing firms.

Objective

New micro-level data reveals enormous heterogeneity across firms in terms of their growth and survival. Young firms are the engines of aggregate job creation and productivity growth even though most startups fail or do not grow. Therefore, only a small share of high-growth firms generates the documented macroeconomic gains. Despite the aggregate importance, we know very little about why firm performance is so heterogeneous, whether these differences are predictable based on characteristics of business founders (entrepreneurs), and how choices of different entrepreneurs to start firms shape, and are shaped by, macroeconomic conditions.

This research agenda studies the nexus of entrepreneurs, firms and the macroeconomy. First, I will estimate to what extent firm growth and survival are predictable from the time of entry and whether characteristics of business founders help explain such patterns. To do so, I will use detailed micro-level data from four countries and adopt a methodology not yet used in this context. Second, I will build a new macroeconomic model of firm dynamics in which business growth and survival profiles are shaped by heterogeneous entrepreneurs in accordance with the empirical evidence.

While the link between heterogeneity of firms and their founders is absent in existing research, without it we cannot study current key policy questions. How does rising income and wealth inequality impact the macroeconomy by affecting choices to start new firms? How can policy promote the founding of high-growth firms, which are less plentiful in Europe compared to the U.S.? What general equilibrium feedback effects do such policies have on workers?

The large degree of firm and founder heterogeneity makes both the empirical and theoretical parts of this agenda very challenging. At the same time, the importance of a better understanding of firm growth for further academic research and for economic policy makes this proposal particularly high-return.

Host institution

THE CHANCELLOR, MASTERS AND SCHOLARS OF THE UNIVERSITY OF OXFORD
Net EU contribution
€ 1 202 014,00
Address
WELLINGTON SQUARE UNIVERSITY OFFICES
OX1 2JD Oxford
United Kingdom

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Region
South East (England) Berkshire, Buckinghamshire and Oxfordshire Oxfordshire
Activity type
Higher or Secondary Education Establishments
Links
Total cost
€ 1 202 014,00

Beneficiaries (1)