Self-employment and trade shock mitigation
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This paper investigates the moderating effects of entrepreneurial activity on the impact of trade penetration. Entrepreneurs may help to mitigate adverse trade shocks through several mechanisms, i.e., more flexible output structure, diversified economic portfolio, and higher knowledge spillovers from trade-induced R&D activities. Our empirical work embeds the analysis of entrepreneurship, measured using self-employment rates, into a framework of international trade and local labor markets. The empirical results show that the marginal impacts of Chinese import penetration on job losses are dampened in localities with higher self-employment rates, which suggests self-employment or entrepreneurial activities can mitigate the adverse impacts of trade penetration from low-income countries. Our study provides a novel perspective on entrepreneurs’ benefits on economic well-being: Besides their direct contribution to economic growth documented in earlier research, they can also enhance the resilience of a local economy in the face of external shocks.
KeywordsSelf-employment Entrepreneurship Trade shocks Economic resilience
JEL ClassificationsL26 R11 F16 F61
This work was funded in part under USDA NIFA grants 2012-70002-19385 and 2014-51150-22094, which the authors gratefully acknowledge. An earlier version of this paper was presented at the 2014 AAEA Annual Meeting in Minneapolis, MN. We thank session participants and especially moderator Mark Gibson for valuable comments. In addition, we are very grateful for constructive comments from the editor, and two anonymous referees.
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