August 1997

Risk, Entrepreneurship, and Human Capital Accumulation

Murat F. Iyigun and Ann L. Owen


We examine the implications for growth and development of the existense of two types of human capital: entrepreneurial and professional. While entrepreneurial human capital plays a relatively more important role in intermediate income countries, professional human capital is relatively more abundant in richer economies. Because the return in entrepreneurial ventures is risky, individuals devote less time to the accumulation of entrepreneurial human capital and more to the accumulation of professional human capital as per capita income grows, thus changing the relative stocks of these skills. We also show that those countries that initially have too little of either entrepreneurial or professional human capital may end up in a development trap. Finally, because the social marginal returns to education and experience may differ from the private marginal returns to education and experience may differ from the private marginal returns, the steady state can be characterized by either too much or too little education.

Keywords: Human capital, occupational choice, education, entrepreneurship, growth

PDF: Full Paper

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