Types of Entrepreneurship and Economic Growth

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Types of Entrepreneurship and Economic Growth
Abstract and Keywords
This chapter is an empirical exploration of types of entrepreneurship and their impact on economic growth in developing and transition countries. It relates indicators of entrepreneurship to average rates of economic growth in the period 2002–5. For this the chapter utilizes a dataset on entrepreneurship in thirty‐six countries from the Global Enterprise Monitor (GEM), collected in 2002. It finds that indicators of young business activity have a significant impact on growth in high‐income countries and transition countries, but not in developing countries. The chapter explains the lack of significant effects in developing countries by pointing to the lack of complementary physical and human capital and the scarcity of larger companies that can act as a training ground for SMEs. Keywords:   entrepreneurship, growth‐oriented entrepreneurship, economic growth, global entrepreneurship monitor 4.1 Introduction

Entrepreneurship has long been considered a crucial mechanism of economic development (Schumpeter 1934; Landes 1998). However, empirical studies on the role of entrepreneurship in economic growth show mixed evidence (Stam 2008). This is not remarkable because there is much heterogeneity in both the kinds of entrepreneurship and the kinds of economic contexts in which economic growth takes place. Until now studies have not sufficiently accounted for this heterogeneity on the micro- and macro-level, which limits our insight into the contingent role of entrepreneurship in economic growth. Important questions in this respect are: ‘How does the role of entrepreneurship differ between high-income, transition, and medium-income countries?’, and ‘What kinds of entrepreneurship are most crucial for economic growth?’. The objective of this chapter is to provide insights into the role of different types of entrepreneurship in economic growth, and on how this role differs in poor and rich economies. In this chapter, we empirically investigate the effect of entrepreneurship on economic growth at the country-level. We use data from the Global Entrepreneurship Monitor (GEM), which provides comparative data on entrepreneurship from a wide range of countries. An important element of this chapter is that we compare the effects of entrepreneurial activity on economic growth in high-income countries, transition countries (China, Hungary, Poland, Russia, and Slovenia), and medium-income countries (Argentina, Brazil, Chile, India, Mexico, South Africa, and Thailand). This dataset also enables us to make a distinction between the effects of entrepreneurship in general and (p. 79 )growth-oriented entrepreneurship in particular. We present empirical tests of the impact of entrepreneurial activity on GDP growth over a four-year period for a sample of 36 countries. Our empirical analyses suggest that entrepreneurship does not have an effect on economic growth in medium-income countries, in contrast to transition and high-income countries where especially growth-oriented entrepreneurship seems to contribute strongly to macroeconomic growth. 4.2 Entrepreneurship and economic development

Development is a broad concept entailing the raising of human capabilities (Sen 1999). One of the central challenges in improving economic development is to increase the standards of living for individuals and growth of the economy as a whole. Even though economic growth in itself is a rather narrow target, it is probably one of the most important targets for development policies. It is also one of the measures that is most easy to access for analysts, and probably the best measure to make cross-national (Barro 1991; Sala-i-Martin 1997) and historical (Maddison 2001) analyses of the development of economies. Traditionally the economic output of a country is seen as a function of capital and labour inputs, combined with technical change (Solow 1957). Of...
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