Entrepreneurship and Occupational Choice in the Global Economy

We present a new stylized fact: trade liberalization reduces entrepreneurship rates. We confirm this fact by showing that countries and industries with higher trade costs have higher entrepreneurship rates, even after accounting for confounding factors. We also use China’s entry to the WTO as an exogenous variation in trade exposure of different industries in the USA and show that industries that experienced a greater import penetration from China experienced a greater decline in their entrepreneurship rates. These patterns can be rationalized through the lens of a framework that combines a model of international trade with occupational choice. Consistent with the implications of this framework, we also find supporting evidence that there is a negative relation between entrepreneurship rate and the share of exporting firms.