Entrepreneurship and economic growth: A phenomenon from and for the society

“Self-employed” or Entrepreneur?
9th August 2016
In the defence of small enterprises
30th August 2016

Entrepreneurship and economic growth: A phenomenon from and for the society

The relationship between entrepreneurship and economic growth is perhaps one of the most relevant topics within entrepreneurship research.

Although there exists a vast amount of research interests about the determinants and consequences of entrepreneurial activity, the scholars recall the importance of this relationship very often at the beginning of their academic articles. As an example of this growing interest, Figure 1 shows the number of documents published during 1960-2016 (August), which are contained within the Web of Science (WoS) database. For scholars, WoS is one of the most important research tools, since it allows to filter the huge amount of information. A database like this contains the high-quality documents among the billions of billions that exist on the internet.
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Source: Web of Science, 2016.
Figure 1 enables, therefore, to see that the study of this relationship is increasing a lot. However, not only scholars are focused on these two factors closely related, but also policymakers and civil society, in general, are interested in participating in this phenomenon. On the one hand, policymakers are currently involved through the design and implementation of public policies that encourage the high added value entrepreneurial activity. On the other hand, civil society has changed the way of thinking about entrepreneurs, improving the support, recognition, and active participation.

The fact that many people are becoming entrepreneurs is striking per se.

There are research projects that have been focusing on the transition of being unemployed/employed to self-employed (or entrepreneur), as well as on the study of being entrepreneur into the company where she/he is part (which is called corporate entrepreneur or intrapreneur), or being an entrepreneur with social purposes (social entrepreneur). In one way or another, motivated mostly by the opportunity recognition, all these types of entrepreneurs are constantly contributing to the growth of cities, regions, and countries. The entrepreneurial activity and its contribution to the economic growth generate, thereby, a reinforced loop that encourages more people to be part of the inclusive development process. Even though the relationship between entrepreneurship and economic growth might be obvious or trivial for some people, it turns out that is not as simple as one may think. There are studies suggesting that some policies encouraging higher entrepreneurial activity might be harmful in the long-term (Shane, 2009; Arshed et al., 2014) since some types of entrepreneurship, derived from either specific policies or social structures, do not have growth potential and tend to be unsustainable through time. In this sense, it is crucial to analyze the effect on the economic output of different types of entrepreneurial activity that take place in countries. With one colleague (David Urbano), we wrote an article in Technological Forecasting and Social Change about entrepreneurship capital types and economic growth (Urbano and Aparicio, 2016).

The concept of entrepreneurship capital appeared on the scene back in 2004, which referred to the social structure (governments, incumbent firms, and civil society) capable of creating productive business projects (Audretsch and Keilback, 2004). In this regard, by using information of Global Entrepreneurship Monitor (GEM), we approached to entrepreneurship capital throughout the total entrepreneurial activity (TEA, those who are involved in the creation of a new business that is between 3 and 42 months of functioning), which is divided in opportunity TEA (those individuals who are entrepreneurs because they identify business opportunities) and necessity TEA (those individuals that have no longer options in the labor market). In our article, we realized that no matter the motivation to carry out an entrepreneurial activity in different countries, the effect on economic growth is positive. Nevertheless, the impact associated with opportunity TEA is higher than the necessity one.

As we discussed in the paper, it could mean that those societies creating adequate laws, connections among individuals, university incentives focused on entrepreneurship (teaching, consulting, and spin-offs), and the creation of national/regional systems of entrepreneurship and innovation, among other strategies, are able to generate an environment full of opportunities, which may be transformed into business projects, and therefore, contribute to the long-term economic growth.

In addition to the previous results, we also found that entrepreneurship capital measured through TEA exhibited higher impact on the economic growth of developed countries (OECD, specifically) than of developing ones (non-OECD countries). Comparing between periods of time, our results suggested that entrepreneurship capital had a higher impact on growth after the crisis period than before. It could imply, on the one hand, that developed countries have created better environments for entrepreneurship, and on the other, that the social initiative and the commitment of individuals to take risks and create new businesses were crucial to overcoming the economic crisis. In this sense, entrepreneurship, as an occupational choice, reflects the capacity of societies to create commercial and social value.

References


Arshed, N., Carter, S., & Mason, C. (2014). The ineffectiveness of entrepreneurship policy: is policy formulation to blame?. Small Business Economics, 43(3), 639-659.

Audretsch, D. B., & Keilbach, M. (2004). Does entrepreneurship capital matter?. Entrepreneurship Theory and Practice, 28(5), 419-429.

Shane, S. (2009). Why encouraging more people to become entrepreneurs is bad public policy. Small business economics, 33(2), 141-149.

Urbano, D., & Aparicio, S. (2016). Entrepreneurship capital types and economic growth: International evidence. Technological Forecasting and Social Change, 102, 34-44.

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