Invention, Entrepreneurship and Prosperity: The Dutch Golden Age

Abstract: The Dutch 16th and 17th centuries were a period of unprecedented economic prosperity. Since the Dutch economy was and is very small, an important source of growth was bound to be international trade. In this paper we argue that the contributions of entrepreneurship to innovation transcend the standard categories of creation of new products and processes. Entrepreneurship also finds new markets for its products and creates new modes of trade. The Dutch were the globalization pioneers avant la lettre. The same considerations apply to the later decline of the Dutch economy. The rise and decline of the Dutch Republic are well explained by a combination of the traditional Total Factor Productivity (TFP) driver, innovations, and two facets of trade, namely openness and entrepreneurship. The evidence for these contentions rests on a remarkable body of economic data that apparently are unique in the early dates to which they pertain and the extensive information they provide.