The Dynamic Brain Drain of Entrepreneurs in Peripheral Regions

Abstract: Using a theoretical model, this paper analyses the evolution of gaps in entrepreneurial activity between the core regions of a country and the periphery. Using data from Israel, the results of the model indicate that endogenous decisions made by entrepreneurs increase the gap in entrepreneurship between the regions, creating a dynamic in which the gap grows continuously. When the model allows for movement between the regions, we find that the most talented entrepreneurs migrate from the periphery to the core region, leading to a brain drain of entrepreneurs from the periphery. Implications of the findings and recommendations based on them are also discussed. The paper contributes to the existing literature by analysing entrepreneurs as individuals, not as one unified group. Doing so facilitates a better understanding of the dynamic process that contributes to the growing gaps between core regions and the periphery.