This article examines the determinants of the equilibrium number of entrepreneurs and the level of productivity in economies where individuals make occupational choices between being self-employed or working as an employee. The results of the theoretical model explain some observed
empirical regularities, such as the negative association between productivity and self-employment rates in cross-country data. The article also derives and empirically tests an unexplored relationship between entrepreneurship and economic growth, in the form of a positive association between
productivity growth in t and the proportion of the self-employed in t − 1, providing a new perspective on cross-country productivity convergence over time.