The Dynamics of Entrepreneurship:Hysteresis, Business Cycles and Government Policy

This paper estimates an unobserved components model to explore the macro dynamics ofentrepreneurship in Spain and the US. We ask whether entrepreneurship exhibits hysteresis,defined as a macro dynamic structure in which cyclical fluctuations have persistent effects onthe natural rate of entrepreneurship. We find evidence of hysteresis in Spain, but not the US,while in both countries business cycle output variations significantly affect future rates ofentrepreneurship. The article discusses implications of the findings for the design ofentrepreneurship policies....