Essays on Entrepreneurship and Innovation

Abstract

These essays investigate the role of entrepreneurial human capital as a driver of innovation and growth. In the first chapter, I estimate the effect of manager education on firm employment growth using administrative panel data on the universe of firms in Portugal between 1995 and 2009. I exploit manager changes and switches between management and other occupations to account for unobserved firm and manager characteristics as well as selection into management. I find that a year of manager schooling increases firm growth by around 0.25 percentage points per year, and also increases survival. In addition, manager education is a highly persistent firm characteristic. These findings imply that manager education can lead to large differences in firm size over the lifecycle. On average, a firm with a college educated manager starts out just nine percent larger than a firm with a primary school educated manager. In a simple simulation, I find that it grows to two thirds larger by age 12 and three times larger by age 30. Entrepreneurial human capital can increase growth through different mechanisms. One of them is the ability to incorporate advances in the technological frontier into production. In the second chapter I explore the importance of this mechanism by analyzing the relationship between local demand for knowledge and city growth using a new database of 5.5 million books published in Europe from 1450 to 1800. The database consists of individual book data drawn from over 72,000 library catalogs around the world, including most major national and research libraries. Exploiting within-city variation, I find that book production is a strong predictor of subsequent population growth. I then distinguish between possible interpretations of this relationship using information on book subjects. I find that the results are robust for books on technology, finance, medicine and history, with technology and finance having the largest coefficients. In addition, although science books as a whole are insignificant, books on chemistry and geology also increase growth, which is consistent with the important roles of chemistry and coal mining during the Industrial Revolution. Books on other topics, such as religion or literature, are not associated with growth, suggesting that the findings reflect the diffusion of knowledge rather than literacy or consumption.