Entrepreneurship and Economic Development
A Commentary on Entrepreneurship and Economic Development (ed. Wim Naudé) Robert J. Strom
Interest in the study of entrepreneurship has flourished among scholars in recent years. This research has brought to light, among other things, the important role of entrepreneurship and innovation in economic growth. We know that innovative entrepreneurs—those who bring new products and processes to the market—are disproportionately responsible for the breakthrough or ‘disruptive’ innovations that change our daily lives and allow for the rapid improvement in standards of living that developed countries have experienced over the past century, and also disproportionately responsible for job growth in industrialized economies. While we have learned much about the effects of entrepreneurship, many of the mechanisms of change remain open for research. The role of entrepreneurship in the economic growth of developing countries is certainly even more complex. Studies of this topic often look to history for answers, following the development path of industrialized or growing nations to find the ‘secret sauce’ for their success. Just as innovative entrepreneurial activity is vital to the ongoing growth of developed countries, innovation and entrepreneurship are essential components to a developing economy’s long-term growth. This is the topic of the recent UNU-WIDER book Entrepreneurship and Economic Development, edited by Wim Naudé. In the remainder of this article, I provide some perspective on this contribution. [pic]
(Photo: Guy Oliver / IRIN)
Firm and industry dynamics
In his chapter to the UNU-WIDER book Entrepreneurship and Economic Development (see further reading 3), William Lazonick compares development in industrial Great Britain, post-war Japan, and the technology boom in Silicon Valley. In each of these cases, he argues, the creation and growth of indigenous enterprises was the necessary ingredient for lasting development. While investment in education and foreign direct investment may make important contributions to growth, he suggests that they were insufficient without entrepreneurial activity. While the macroeconomic perspective on entrepreneurship and its relationship to economic growth and development convinces us of the vital importance of this phenomenon, it is equally important to consider microeconomic research that analyses entrepreneurial activity from the perspective of individual firms and industries in the context of developing countries. Discovering the reasons why firms start and grow, how they develop, and why they may eventually die, is critical to economies that rely on innovative new businesses for sustained growth. Identifying data to analyse the processes of firm and industry dynamics is difficult even in highly industrialized nations with more extensive reporting requirements. By its nature, the entrepreneurial economy can only be described as turbulent, making it difficult to fully measure. As developing countries face this same entrepreneurial turbulence amidst an already more tumultuous legal and social environment, it is even more difficult to observehow successful firms come into being. Innovative entrepreneurs
Studies linking entrepreneurship to economic development largely focus on innovative entrepreneurs—those who introduce radically new products and processes to the market. These innovative individuals are very different from the population William Baumol has called replicative entrepreneurs—those who start new businesses similar to those they see around them (see further reading 1). While replicative entrepreneurship may lift individuals and families out of poverty, it is the innovative entrepreneurs who are the key to long-term economic growth. In fact, this differentiation between innovative and replicative entrepreneurs is one of several important distinctions to make when studying the vast population of business owners. In her chapter on...
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