ENTREPRENEURSHIP
IMPORTANCE IN ECONOMIC
DEVELOPMENT AND INSTITUTION
BY ZOLTAN J.ACS , SAMEEKSHA DESAI ,
JOLANDA HESSELS
INTRODUCTION
This article introduces the reader to the special issue coming from the third Global
Entrepreneurship Monitor Research Conference. In 2008, the conference was held
in Washington, D.C. The purpose of this paper. to investigate the empirical data on
the relationship between economic development stages and entrepreneurship.
AIM OF THE STUDY
● The aim of this exercise is to look into the link between economic
development and entrepreneurship. The studies are framed within
the framework of economic development theory. The objective of
this review is to comprehend the significance of the three stages of
economic development: factor-driven, efficiency, and
innovation-driven.
● This study may be of particular interest to those who are keen to
know about entrepreneurship within or between countries, as well
as the relationship between entrepreneurship, economic
development, and institutions.why the entrepreneurship activity
differs from country to country?
Entrepreneurship is seen as a key driver of
economic development.
● The nature and structure of entrepreneurial activities differs by
country, as indicated by the relative proportions of necessity and
opportunity entrepreneurship
● Acs and Varga (2005) discovered that opportunity entrepreneurship
has a significant beneficial impact on economic development.
● Institutions are important predictors of economic behaviour (North
1990) and transactions (Williamson 1998), and they can have direct
and indirect effects on entrepreneurial supply and demand
● Public policy must be informed by the dynamics of entrepreneurship
and economic development, as well as appropriate local institutional
conditions and context-specific elements
BRIEF SUMMARY OF THE ARTICLE
● This special issue includes papers from the 3rd Global Entrepreneurship
Monitor(GEM) research conference. Three conferences were convened, each
focusing on the relationship between entrepreneurship, economic development,
and institutions in the global economy among developed, transition, and developing
countries.
o "Do existing entrepreneurship measurements accurately reflect the
relationship between entrepreneurship and economic development?"
o How well the papers studied under this special issue can follow policy
implications?
PORTER’S COMPETITIVENESS MODEL IN ECONOMY GROWTH
PORTER’S THREE STAGE MODEL
An Efficiency-driven
stage
A factor-driven stage
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Increased level of
non-agricultural
self-employment
Vast majority of Sole
proprietorships
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Industries are either makers or
providers of basic services
Technology must be adapted for
efficient production and educate
workforce by countries to move
to this stage
An Innovation-driven
stage
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Surge in entrepreneurial
activities
Advancement in
informational technology
higher aggregate elasticity
values.
The Global Entrepreneurship Monitor (GEM)
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(GEM) is an annual evaluation of entrepreneurial activity at a country level.
The role of entrepreneurship in national economic growth is being investigated
as part of GEM.
The GEM model is used to assess both the data gathering process and to give a
theoretical and policy foundation (Le vie and Autio 2008)
It also assesses the existence of start-ups and new businesses.
A key drawback of GEM data has been its inability to adequately deal with the
'problem' of comparing entrepreneurial activity in rich and developing nations.
According to GEM experts, the link between opportunity entrepreneurship and
economic growth is most likely negative in low-income nations.
Japan has a high degree of opportunity entrepreneurship and a low level of
necessity entrepreneurship, whereas India and China, at least in some sections
of the nation, have a high level of opportunity entrepreneurship.
Secular decrease in
entrepreneurship in many
countries and economic
growth is powerful driver
Entrepreneurial
activity is
inversely
associated to
economic
development
shifting away from
low-wage jobs and
toward more creative
projects in developing
countries
Transition from
self-employment to
paid employment in
industrialised
nations
U-shaped relationship between entrepreneurial activity and
economic development in the global economy
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In the line of Research Carree et al.(2002) and Wennekers et al. (2005) found support for the U-shaped
relationship between countries at different stages of development (see Fig. 1) .
The article also compared and contrasted self-employment in OECD and less developed nations.
However, the U-shaped technique has limited utility in other areas, such as analysing the reduction in
self-employment in under developed nations.
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Opportunity entrepreneurship
an
03
ty
Opportunity
entrepreneurship
02
Reflecting the
individual's perception
Opportunity-to-necessity entrepreneurship ratio and country
income was estimated using a polynomial regression model.
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Opportunity-necessity
entrepreneurship ratio and
income per capita. Note:
entrepreneurship data are for
2004, income data for 2002 (the
latest available). The sample of
countries is defined by the Global
Entrepreneurship Monitor
database. Source',
entrepreneurship data GEM
2004 Global Report
Acs and Szerb (2008), Acs and
Sten Stenholm (2008),
Ahmadand Hoffmann (2008), and
Klapper et al. (2007) are working
on a new family of global
entrepreneurship indexes. The
indicator is not U-shaped, but
rather grows with the country's
degree of development. That is,
rather of being U-shaped, the
index rises with the amount of
development.
The Global Entrepreneurial Context Index (GEI)
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Over the years 2003-2006, the Global
Entrepreneurial Context Index (GEI)
assessed entrepreneurial activity,
strategy, and attitudes in 54 countries,
including developed and developing
nations (see Fig. 4).
The index has a value ranging from 0 to 1
and is displayed against per capita income
based on purchasing power parity. The
results are again favourably associated to
development when compared to those of
poorer nations.
The association between
entrepreneurship and economic
development appears to be modestly
S-shaped rather than U-shaped, according
to our findings.
We examine the need for a worldwide
entrepreneurship index in this special
edition of The World Economic Review
CONCLUSION
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Entrepreneurship
Economic
development
Broad conceptual model
of the GEM framework
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Institutional
Organisations
Presenting
multiple levels of
analysis
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Addresses the relationship between
national-level business activity and
institutional environments.
Jonathan Levie and Erkko Autio
examine the GEM Model from a
theoretical standpoint.
The GEM model finds the factors
that are most conducive to
entrepreneurship success.
One of the earliest projects to
collect cross-country, harmonised
statistics on entrepreneurship.
GEM focuses on early-stage
entrepreneurship
CONCLUSIONS CONTD….
The research by Acs-Desai-Klapper compares two datasets created
to capture entrepreneurial dynamics: GEM and the World Bank's.
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GEM focuses on early-stage
entrepreneurship.
In emerging economies, the GEM statistics
show much greater levels of early-stage
entrepreneurship
GEM data may represent the potential
supply of entrepreneurs,
GEM data indicate entrepreneurial
"motive" and reflect the informality of
entrepreneurship, which is especially
prominent in developing countries.
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World Bank data includes formal firm
registration.
For developed countries, World Bank
business entry data generally higher than
GEM data.
The World Bank tracks the rates at which
people enter the formal sector.
CONCLUSIONS CONTD.
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Exporting enterprises are more productive and capital intensive than non-exporting
firms, and they perform better in general.
The research analyses how nations in the efficiency-driven stage of growth are
impacted by entrepreneurial behaviour using the standard Ushaped model. They
discovered that high-impact entrepreneurs had a detrimental influence on
development as well.
The Acs-Amorós study begins with a survey of economic development literature,
concentrating first on import substitution, then on export promotion, and lastly on
the function of export promotion in developing nations.
A paper investigates the relationship between aspirations and entrepreneurial
motivations using country-level GEM data. It finds countries with a higher incidence
of increase-wealth-motivated entrepreneurs tend to have higher rates of
job-growth oriented and export-oriented Entrepreneurship.outcomes (Cassar 2007;
Wiklund and Shepherd 2003).
The authors show that the increase-wealth motive mediates the relationship
between country economic development and entrepreneurial aspirations through
findings from GDP per capita.
POLICY IMPLICATIONS:
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The findings show that policy makers can have a favourable impact on
entrepreneurship in nations that are in the innovation-driven stage.
Post - secondary entrepreneurial education and training may be 'eye-opening,' as it
has been shown to have a beneficial impact on opportunity perspective.(Levie-Auto)
Institutional arrangements, such as social security provisions, can have a direct or
indirect impact on many sorts of entrepreneurial activity.
The findings show that policymakers may boost entrepreneurship by encouraging
outward FDI and international commerce for nations in the innovation-driven stage.
Governments could facilitate entrepreneurship spillovers by creating geographical
zones specifically reserved for internationally oriented firms. Findings illustrate the
importance of role models for fostering entrepreneurship. Governments in higher
income countries could facilitate export spillovers, while those in lower income
countries should focus on increasing the capacity to absorb and exploit export
spillovers.(De Clercq-Hessels-van Stel)
GENERAL CRITIQUE:
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Studying entrepreneurship, the methods through which companies join and depart the
market, and, in particular, the characteristics of growing enterprises, is critical to our
understanding of the structural transformation process and, ultimately, enhanced
productivity.
Alternative ideas and studies investigate the link between growth entrepreneurship and
economic growth, innovation, productivity, and job creation.
In this literature, there is controversy concerning which of these attributes related with
growing entrepreneurship are innate and which may be learnt. Furthermore, among those
with potential, those with access to know-how and networks outperform those who do not.
In contrary to this special issue, exogenous elements influencing entrepreneurial orientations
(innovativeness, risk-taking capacity of entrepreneurs, proactiveness, info-seeking behaviour)
such as cultural/ethnic background, family business experience, and emotional intelligence
(EI) are also investigated.
Keeping the findings confined to the porter’s three stage model of economy can be limiting the
study on entrepreneurship development.
All other aspects, which are also necessary and paramount to every entrepreneurial strategy,
are considered as supported by government policy. The difficulty is that there is a better
chance of a positive outcome if there is government policy that moderates the relationship
between entrepreneurship and economic development.