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The Impact of Entrepreneurship on Economic Growth

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Added on  2024-01-17

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This paper discusses the impact of entrepreneurship on economic growth and how it affects innovation, competition, and productivity. It explores the relationship between entrepreneurship and economic growth at the individual, firm, and macro levels.

The Impact of Entrepreneurship on Economic Growth

   Added on 2024-01-17

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Institution/Affiliation: Kyrgyzstan Turkey Manas University
According to Chell & Ozkan, (2010), an entrepreneur is someone who is willing to bear the risk of a
business venture where there is a significant chance for making profit. Entrepreneurship is basically
the practice of starting a business in order to earn profit on new found opportunities. Entrepreneurship
is a challenging task as many businesses which start fail to take off. Entrepreneurship has many
uncertainties especially when new products are created for which there is no existing market.
Entrepreneurship affects economic growth in various ways. It is through entrepreneurship that
important innovations enter the market leading to new products or production process which
eventually increases efficiency through bringing competition in the market. This paper discourses the
impact of entrepreneurship on economic growth. Ideas and concepts that emerge from entrepreneurs
increase our knowledge and what consumers may prefer through introducing variations of existing
products and services in the market. This speeds up innovation of new products in the market as a
result of the longer working hours and more efficient nature of entrepreneurs as their income is
directly linked with their working input. Entrepreneurship leads to introduction of new goods with
new quality and value. Their innovativeness introduces new ways of production and new markets that
have not been exploited. It is through entrepreneurship that new source of supply are discovered and
creation of new business organisations that directly affect the economy. Creation of new business
opportunities through entrepreneurship, productivity and innovation leads to economic growth. This
therefore means that when there is more entrepreneurship in an economy more growth is expected.
Keywords: Entrepreneurship, Economic Growth, Innovativeness
1.0 Introduction
There has been a wealth of knowledge on the determinants of entrepreneurship over the last
few decades. Although studies bringing forth this knowledge have rather been based on
theoretical grounds, others have been drawn from drawn from empirical evidence. Scholars
have also been keen in investigating the impact of entrepreneurship in relation to economic
growth which has further led to the explosion of extensive literature in this field (Van Stel,
Carree & Thurik, 2005). It important to note that a significant amount of existing literature
The Impact of Entrepreneurship on Economic Growth_1
has been based on the observation of firms, establishments and regions in terms of their
economic performance, growth and survival. The facts that can be derived from these studies
link economic growth with the size and age of the firm or an establishment. According to Van
Stel, Carree and Thurik (2005), newly established firms and very small firms experience
systematically faster growth compared to the already established larger firms. These findings
have been found to hold in the modern industrialized economies as well as across time periods
(Karlsson, Friis & Paulsson, 2004, p.3). The connection between entrepreneurship and
economic growth measured in terms of performance of the firm has been extended even
beyond observing the establishment to accommodate geographic regions. This paper
discourses how entrepreneurship can be related directly economic growth and how
entrepreneurship is at the heart of economic growth of any nation.
1.1 Understanding Entrepreneurship and Economic Growth
In terms of how entrepreneurship has been a stimulant in economic growth, there exist
enormous discussions and debates but it is however eminent to realize the importance of
constant innovations and rivalry enhancement (Todtling & Wanzanbock, 2003). There has
been a problem in defining and measuring entrepreneurial factors and this has further
complicated the exact contributions to economic growth. According to Carree and Thurik
(2002), the concept of entrepreneurship is multidimensional and largely ill-defined.
Understanding the role of entrepreneurship in the process of economic growth will therefore
require a framework because of the nature of intermediate variables and connections which
exist (Bygrave & Minniti, 2000). The best examples of these intermediate variables include
innovation, competition mainly characterized by exit and entry of firms, variety of supply and
particular energy and efforts of invested by entrepreneurs. Other conditions of
entrepreneurship also add up when it comes to their contributions to economic growth
(Robbins, Pantuosso, Parker & Fuller, 2000). These conditions include personal traits, cultural
and institutional factors as shown in Fig 1 below.
Figure 1: Appreciating Entrepreneurship
2 Entrepreneurship (largely multidimensional)
Intermediate Linkages (Innovation, competition variety and entrepreneurial
Conditions (Personal traits, institutional and cultural elements)
Economic Growth
The Impact of Entrepreneurship on Economic Growth_2
Source: Carree and Thurik (2002).
1.2 Extended Definition of Entrepreneurship in Relation to Economic Growth
While entrepreneurship is all about the activities carried out by individuals, the concept of
economic growth has often been relevant at firm level, industrial, national and regional levels
(Robbins, Pantuosso, Parker & Fuller, 2000). This implies that linking entrepreneurship to
economic growth will be to amalgamate individual to aggregate levels. Considering this
linkage however requires revisiting the definition of entrepreneurship, whereby entrepreneurs,
either as individuals or a team, manifest their willingness and abilities to create new
opportunities in economy (Todtling & Wanzanbock, 2003). In this manner, novel products,
production modalities, organizational schemes and product-market combinations are created.
The entrepreneurs seek to introduce their newly crafted ideas in the existing market in the face
of obstacles and uncertainties. They also make critical decisions in terms of business location,
forms and the utilization of available resources and institutions (Acs & Armington, 2004). In
a nutshell, entrepreneurship refers to the behavioral attributes of individuals and should not be
confused with well-defined professional persons (Lloyd-Ellis & Bernhardt, 2000).
2.0 Forms of Entrepreneurship
According to Carree and Thurik (2002), entrepreneurs in history have often been represented
in many faces and assumed different roles. As identified by scholars such as Schumpeter,
Kirzner and Knight, entrepreneurs can be termed as innovators, profit opportunists and
uncertainties and risk takers respectively. Schumpeter drew his attention to understanding an
entrepreneur as an innovator. As an innovator, the entrepreneur performs new combinations
which Schumpeter called enterprises (Karlsson, Friis & Paulsson, 2004). An entrepreneur
according to Kirzner perceived profit opportunities. This role is what was labeled Kirznerian
entrepreneurship. The last role of an entrepreneur is that of assuming the several risks and
uncertainties which may be associated with running a business. This role is labeled Knightian
entrepreneurship. As the individual introduces a new product in the market or starts a new
business, this entrepreneurial role can be described in terms of the three labels. As posted by
The Impact of Entrepreneurship on Economic Growth_3

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