Entrepreneurship and Economic Development
Entrepreneurship plays an important role in economic development of any country. Both are closely and positively linked together. The idea about this relationship has made its way since early works of Schumpeter (1911). Entrepreneurs with their skills and innovative activities brings growth for their firms and which in turn helps in developing economy for their countries. This makes us to believe that an increase in number of entrepreneurs means an increase in economic development.
In his book Schumpeter has described innovative activities as “the carrying out of new combinations”. Here are the five combinations presented by him (Schumpeter, 1963 (1911), p. 66) -
The introduction of a new good – that is one with which consumers are not yet familiar – or of a new quality of a good.
The introduction of a new method of production, that is one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially.
The opening of a new market, that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before.
The conquest of a new source of supply of raw materials or half-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created.
The carrying out of the new organization of any industry, like the creation of a monopoly position or the breaking up of a monopoly position.
Through these innovative activities, entrepreneurs creates new profit opportunities. These opportunities can be a result of increase in productivity, in which case, their relationship to economic development is quite clear. Moreover, the atmosphere created by the entrepreneurs helps in building favorable ground for additional innovations and profit opportunities. Therefore, more entrepreneurs means more development, which in turn leads to more entrepreneurs and this process is self-feeding.
Schumpeter, Joseph A. (1911): The Theory of Economic Development. An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Translated by R. Opie, and Published by Oxford University Press (1963).