Discuss the Relationship Between Entrepreneurship, Innovation and Economic Development

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Discuss the relationship between entrepreneurship, innovation and economic development.

With the rapid development of a dynamic global economy, increasingly countries are seeking breakthroughs in their economic development. Stimulated by these ever-increasing competition pressures, exploitation of new ideas and businesses which provide great potential for economies to thrive, accordingly, is gaining widespread attention (Mansfield, 1972; Wong et al., 2005). In consequence, on a global scale, not only some developed countries with strong capability to absorb and implement new ideas, but also some emerging developing countries, are taking measures to inspire entrepreneurship and innovation with the purpose of benefiting economic development from these competitive advantages (Stoneman, 1995; Zhao, 2001). It is universally held that entrepreneurship and innovation are complementary and their combination can efficiently contribute to economic performance (Grupp, 2001; Stoneman, 1995). During the transfer from idea creation to eventual economic development, innovation is supposed to be a necessary condition, but it also demonstrates great insufficiency which can be completed by entrepreneurship’s mediating effects (Audretsch, 1995; Camp, 2005). This essay will use a host of theories and examples to primarily analyze the relationship among innovation, entrepreneurship and economic development and state the roles that creativity and problem solving play in these relationships.

The basic relationship between innovation and entrepreneurship is generally believed to be complementing and interacting with each other. Innovation is a base from which entrepreneurship can follow. Ireland, Hitt, Camp and Sexon stated that a significant innovation can lead to a successful entrepreneurial venture. Review the business history, there is a simple model which was put forward by Brazeal and Herbert that can illustrate that innovation is the base of entrepreneurship. This model is relevant to the entrepreneurial process. In this model, authors objectivized the innovation as psychological innovation and they considered the ultimate entrepreneurial event is driven by it. Furthermore, the psychological innovation is the consequence of creativity plus technical innovation which is on the most part influenced by environmental change (Brazeal and Herbert, 1999). Entrepreneurship can provide the inspiration needed for innovation. Ortt and Smits (2006) stated that an increasing number of companies have realized that their external market and internal organization are in desperate need for an efficient entrepreneurial approach to innovative activities. These companies treat it as a significant problem. However, they are not the entrepreneur who lacks entrepreneurship; they are the managers who try to combine the entrepreneurial awareness with the changeless organizational routines. It is they who contribute to this significant problem. Consequently, Thornpson accentuated that” if we want more innovation, we need more entrepreneur”. However, consider above all, based on much controversy about “which is more important”, the relationship between both of them is concluded as interacting and complementing with each other.

The relationship between innovation and economic development is mutual. On the one hand, innovation guarantees the high performance of economic development. According to a quote, in developed countries’ long-term economic growth, more than 50 per cent stems from innovation (Linsu, 1999). It is explained as “the innovative activity of entrepreneurs feeds a creative ’destruction process’ (Schumpeter, 1942) by causing constant disturbances to an economic system in equilibrium, creating opportunities for economic rent” (Wong et al. 2005). It means that innovation can accumulate knowledge to increase the high technology intensity. As well, the change of old system due to revolution of technology can raise working efficiency, which is an...
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