International trade, foreign investment and the formation of the entrepreneurial class.

Examines the argument that free trade may be harmful to less developed countries, because such international competition inhibits the formation of a local entrepreneurial class. Shows that the entrepreneurial class is smaller under free trade than would be first-best optimal in the presence of efficient risk-sharing institutions such as stock markets. Nonetheless, there are potential gains from trade, and any protectionist policy that increases the number of entrepreneurs will have deleterious welfare consequences. -from Author