Entrepreneurship

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Nowadays, a large number of entrepreneurs are starting their business, trying to find new chances and using innovations in management and technology to achieve more economic benefit. In order to know how these entrepreneurs affect the economic growth, it is important to examine the relationship between entrepreneurship, innovation and economic development and define the role of creativity and problem solving in this relationship. This essay will begin with the definition of entrepreneurship and innovation and then explain their relationship, followed by how these two affect economic growth. It will then provide a case to explain the relationship of these three factors. Finally, the role of creativity and problem solving will be discussed. To analyze the relationship between entrepreneurship, innovation and economic growth, it is necessary to understand the definition of these terms. The word entrepreneur, first used by Cantillon in his essay published in 1755, refers to an individual who does business under conditions of uncertainty in order to make entrepreneurial profit. Say (1767-1832) gives a more explicit definition including the different characteristics an entrepreneur should have, namely, the ability to “deal successfully with financial markets and the markets for raw materials, the production plant and equipment, as well as labor and premises”(Lumsdaine, Binks, 2007, p.13). However, in Say’s definition, there is still a crucial element missing which Joseph Schumpeter (1883-1950) comes up with. Schumpeter (1883-1950) adds the element of difference, uniqueness, innovation and change to Say’s definition. Combine the theory of many economists the definition of entrepreneurship be indicated as follow: “the Entrepreneurship is the manifest ability and willingness of individuals, on their own, in teams, within and outside existing organizations to perceive and create new economic opportunities (new products, new production methods, new organizational schemes, and new product–market combinations), and to introduce their ideas to the market in the face of uncertainty and other obstacles by making decisions on location, form and the use of resources and institutions” (Wennekers & Thurik, 1999, p.46-47). There is no direct connection between economic growth and entrepreneurship. However, there are certain intermediate variables that can build up the link between these two. At first, economic development influences the choice or demand of a consumer. In other words, the market appeal determines the trends. Hisrich, Peters and Shepherd (2010) show trend as one of the suitable opportunities for starting a new firm, especially when the entrepreneur can identify the trend quickly. Therefore, the intermediary variable between entrepreneurship and economic development is the consumer’s demand. Secondly, innovation is one of the main factors affecting economic growth as it develops new goods and services that stimulate investment in the new venture being created (Robert, Michael, Dean, 2010). The development of technology requires enormous financial support which is based on economic performance. An example would be the investment of the United States spent on Department of Defense (DoD) projects. According to the results of McNutt (1998), the U.S. Department of Defense keeps the lead statues of the world’s largest product development operation. In 1997, it cost the U.S. DoD$32.5 billion on evolving new or perfected military systems. In 1998, the cost instantly reached $732.5 billion on researching, evolving, testing and evaluating new systems. In the past 20 year, the spending of the U.S. DoD on this field was correspondent to 1998. The total revenue of government determines how much the government will invest on innovation. Therefore, economic development indirectly affects entrepreneurship through market appeal and innovation. Simultaneously, entrepreneurship has indirect impact on economic development adversely by two...
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