A gain from trade: From unproductive to productive entrepreneurship

There is a large and growing theoretical literature studying the allocation of individuals and their effort amongst productive and unproductive entrepreneurial activities. Trade and competition between regions have been recognized as potentially powerful forces limiting unproductive entrepreneurial activities. In this paper we extend the technology-ladder model of Grossman and Helpman to study this issue and demonstrate conditions under which lowering of tariffs leads to a shift from unproductive to productive entrepreneurial activities.