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Globalization and the rise of the entrepreneurial economy

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This paper argues that globalization has led to a shift in developed countries from an industrial to an entrepreneurial model of production. Globalization is interpreted as a level shock in the supply of unskilled labor to the world economy, a decrease in the level of political risk associated with outward foreign direct investment (offshoring), and the widespread diffusion of a general purpose technology such as ICT. The im-pact of these exogenous shocks is then analyzed in a variety expansion model that distinguishes among three types of varieties. Following the life cycle we distinguish among new, mature and offshore production. The above shocks all result in a shift in comparative advantage in developed countries towards new varieties which corres-pond to the early stage of the product life cycle. Moreover, because entrepreneurs serve as agents that move varieties between life cycle stages, their importance in-creases due to globalization. The many new opportunities for profit benefit entrepre-neurs and skilled labor. By contrast, factors of production employed in the mature stages of the life cycle become less important. Thus, the model explains the emer-gence of what we label an entrepreneurial economy.

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David B. Audretsch, Mark Sanders

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Adapt according to the presented license agreement and reference the original author.