DP5290 Learning to be an Entrepreneur

Author(s): Luigi Guiso , Fabiano Schivardi

Publication Date: October 2005

Keyword(s): entrepreneurship , clustering , agglomeration economies , learning

JEL(s): D24 , D62 , J23

Programme Areas: Financial Economics , Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP5290.asp

Is entrepreneurial talent entirely innate or do people learn to become entrepreneurs? We extend Lucas's (1978) model of entrepreneurship to allow for the possibility that entrepreneurial talents may be acquired by watching other entrepreneurs in action. This model implies that areas with a greater number of firms have higher average firm productivity. We confirm this prediction using Italian firm level data. We show that the endogenous accumulation of entrepreneurial talents is a more convincing explanation for clusters of firms than heterogeneous entry costs. The evidence supports the role of learning even after controlling for other potential sources of local externalities. We also find that other specific implications of the learning mechanism are confirmed by the data.