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Lauren Pratt

Professor Sobocinski

English Composition 2

29 March 2020

How Does Entrepreneurship Drive Economic Growth?

In recent weeks, one would be hard pressed to be ignorant of the latest

pandemic spreading the globe. With toilet paper supplies and many people’s health,

the economy has also been decreasing consistently . While the virus is said to last for

several more months, in the end one question will be asked: How can we begin to fix

the economy? With the looks of the global situation right now due to COVID-19, it

seems that many people will be graduating from college only to enter a struggling

economy. However, in some ways this could be the perfect time for entrepreneurs to

develop new products and ideas. The global circumstances right now have forced

people into different lifestyles. This changes perspectives which gives totally new

views on the existing problems people face and how they can be solved. In other

words, this moment could simply be the catalyst for entrepreneurs creating massive

new technology that could do wonders for each of our lives outside of quarantine.

Zoltan Acs, the Director for the Center of Entrepreneurship and Public Policy stated,

“the entrepreneur was the prime mover in economic development and his function

was to innovate” (Acs). Thus, this could be the time for a new age of entrepreneurs to

create new advancements that change how people’s lives function forever . These

innovative entrepreneurs can improve economies by providing new job opportunities,

competing with existing businesses to offer better products, and increasing

productivity through technological advancements . However, it is a concern that new

businesses are risky with great consequences for failure; nonetheless even with

these risks in mind, entrepreneurs’ innovation and creativity can build lasting

businesses that can build economies and serve their communities .

Involving the discussion of entrepreneurship , there is often an all-

encompassing, vague description on how an entrepreneur is defined. For the

purposes of this study, simply employing oneself does not necessarily title them as

an entrepreneur. For example, in entrepreneurship there are two main types:

necessity entrepreneurship and opportunity entrepreneurship . Opportunity

entrepreneurship “depends on opportunities where an individual finds an opportunity

to start a business as one of the options for job opportunity . [On the other hand]

necessity entrepreneurship activity in which entrepreneurs consider this type of

initiative to be the last resort of enterprise for them because other job options are

neither satisfactory nor available. This…[necessity] type does not have any impact on

economic growth, but just meets the needs of an individual to have a job”

(Hamdana). As a result, opportunity types of entrepreneurship are driven because

there’s an unmet need in the community, an unused resource to be utilized, or a

source of potential unexplored. In this way, opportunity entrepreneurs grow larger

businesses that provide more jobs, competition, and technological advancement to

their community’s economy. One reason for this phenomenon is that “opportunity

entrepreneurs expect their ventures to produce more high-growth firms and provide
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more new jobs” (Acs). Furthermore, it is an opportunity entrepreneurs’ desire to

develop economies by bringing new jobs, new products, and increased competition.

These opportunity entrepreneurs build new businesses that grow into new business

sectors and improve the lives of many either by offering a new product or giving

those without jobs a new way to make a living. On the flip side, necessity

entrepreneurs are only seeking to meet their own need of having a job rather than

bringing job opportunities or new products to more people outside themselves.

Therefore, while the definition of entrepreneur can largely be understood as anyone

owning their own business and employing themselves. For the purposes of

discussing how entrepreneurship drives economic development, the focus will be on

opportunity entrepreneurs who use innovation and creativity to find solutions to

problems that create competition, produce new jobs, and increase productivity with

their technological advancements.

Entrepreneurs throughout the ages have been known for their determination

and ability to solve problems. In this way entrepreneurs look for the broken areas of

society but rather than throw them away they look to fix and rebuild, bringing about

the much-needed change and development to communities. Brenda Palms-Farber is

an example of a citizen who took it upon herself to make changes in an area she

knew needed much change. “Currently, taxpayers spend about 60,000 dollars per

year sending a person to jail. We know that two-thirds of them are going to back”

(Carter). However, Palms-Farber did not settle with the existing way of dealing with

ex-convicts and give up on them as most others in society had. Rather, Brenda

Palms-Farber created a solution to America’s recidivism problem by establishing a

business that created beauty products through the honey from bees. As a result of

Palms-Farber’s solution to one of America’s most extensive and expensive problems,

individuals who had been considered unfit for anything but the lowest jobs were hired

and given the opportunity to change their life by learning important job skills

necessary in today’s workforce such as teamwork and communication . Furthermore,

the individuals who went through her work program returned to jail at a considerably

decreased rate than the national average . As a result, Palms-Farber’s program

allowed ex-convicts the ability to become productive members of society once again .

In the same way that Farber’s solution helped others by providing jobs to ex-convicts

to keep them out of jail, other new businesses also provide new jobs to individuals

through the creation of new companies. While entrepreneurial start-ups usually start

with only a few people, as they grow more employees skilled in a variety of areas are

needed to help keep the business running. As a result , potential employees have

more options in their job search increasing the likelihood of finding a job they are truly

passionate about and will enjoy. In addition, with more jobs on the market, more

individuals will be able to be employed decreasing unemployment rates and growing

economies as more money flows between businesses and consumers . Through

individuals creating businesses based on the opportunities in their communities, the

economy is strengthened as more people are employed and self-sufficient .

Now it is proven that “a rise in innovative start-up activity is more effective than

an increase in general entrepreneurship in accelerating economic growth” (Adusei)

because of innovative start-up’s ability to create technology that can be used across
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many areas of business and life. Therefore, when looking for entrepreneurial

ventures to spark economic growth, technological advancements create a larger

drive as they carry over into other sectors slowly changing the way people function in

daily life. When science and technology meet that is where innovation, advancement,

and economic growth is developed. Just in the past decade, entrepreneurs such as

Travis Kalanick and Garrett Camp with the creation of Uber, or Reid Hoffman with

LinkedIn have together changed how each of our daily lives run, how business is

conducted, and how we enjoy our free time. Just as these excellent entrepreneurs

illustrated, “entrepreneurial activity in developed countries needs to focus on high

value-added, high technology, innovation and technological commercialization” (Acs).

A popular example of this statement is Steve Job’s creation of Apple and the iPhone.

The technology created by Apple in the last forty years has revolutionized almost

every aspect of society’s daily life. Furthermore, through this groundbreaking

technology produced by Apple and a handful of companies like it, thousands of new

businesses have been created with the ability to compete with these larger

corporations because of the ease and availability the new technological

advancements have allowed for all users. In addition, new sectors of business such

as social media marketing and social media influencers have been created because

of the new opportunities available through the advancements in modern technology.

In the end, through the creation and use of new technology businesses are created,

providing new jobs and opportunities that cause economic growth as people build off

of the entrepreneurial works of others to provide new opportunities for themselves

and others.
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Another way entrepreneurship drives economic growth is through competing

with large, existing businesses. This competition forces both parties to outdo and out

produce the other, all while creating a better product and giving the consumer more

product options. “New business formation has an indirect competition-enhancing

effect by pushing established firms to improve their performance…[as] Compared

with incumbent firms, new firms invest more in searching for new opportunities”

(Kritikos). As a result for fear of being pushed out of business, existing businesses

work also to improve their products rather than settle into existing habits. This

indicates that new entrepreneurial ventures drive competition in both their physical

and business communities allowing for better products to customers along with more

choice between the features and benefits available. In addition, it drives competition

in the ways employees are treated. The best employees with the most experience

will be wanted therefore improving the way employees are treated as businesses

want to maintain, for the long term, their best employees. Sweden is an example of a

developed nation that has had relatively low levels of entrepreneurship and therefore

competition between businesses in the past decades. As a result, the low levels of

entrepreneurship in Sweden have been predicted to hurt their economy as there has

been a lack of new businesses established, a slow in product improvement, and a

decrease in finding more innovative forms of production. Entrepreneurship is one

way these circumstances can be combated; however, when entrepreneurship is

mentioned it is often emphasised how risky and prone to failure many new

businesses are. Statistically speaking, “failure rates are high within the first five years

of starting a business, typically around 40-50% with the highest failure rate in the first
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year” (Kritikos). With these high rates allowing for almost one-half chance of failure,

many would think twice before putting their money, job security, and livelihood on

these chances of a new business possibly succeeding. Nonetheless, it has been

proven multiple times in studies throughout the world that entrepreneurial focused

nations develop for the most part faster than nations that are developmentally

stagnant and not actively working towards more efficiency, production, and utilization

of resources. In addition, many entrepreneurial-focused nation’s governments have

taken countless measures to decrease these risks and negative effects of failure in

hopes to encourage more individuals to take advantage of possible opportunities

through entrepreneurship. In the end, with all factors considered, entrepreneurs can

be an important catalyst in driving economies forward into new industries, new

advancements, and new technology for the days of tomorrow.

Now, while entrepreneurship benefits developed nation’s by growing their

economies in times when “increases in income are experienced, the role played by

the entrepreneurship sector increases again, as more individuals have the resources

to go into business for themselves in a business environment that allows the

exploitation of opportunities” (Acs). Entrepreneurship has yet to play a large part and

benefit the economies of developing nations; for example, “the average number of

new firms registered in a fiscal year in the study countries [of Africa] during the period

under investigation is 10,453.22. Compared to the 361,264.5 average number of

firms registered in the United Kingdoms during the same period” (Adusei). From

these numbers, one can accurately assume that the evidently low levels of

entrepreneurship in Africa could have something to do with the difference in national

economic development between the two countries. In fact, there are mainly three

stages of national economic development that have a large effect on whether or not

entrepreneurship is an effective method for economic growth. Starting in the first

stage, there are few large corporations which means few jobs resulting in most

people being self-employed under the category of necessity entrepreneur. When

necessity entrepreneur levels are greater than the levels of opportunity

entrepreneurs, there is little to no economic growth due to entrepreneurship.

However, as more large corporations are developed from those once small

entrepreneurial ventures, enough jobs are provided to employ most of the population.

As a result, the levels of necessity entrepreneurs decrease as individuals rely on

large corporations for their jobs. At this point there are enough jobs in the economy

allowing people to have the option of leaving their corporations and employing

themselves once again. However, in the situation at level three, most are leaving

their corporate jobs as opportunity entrepreneurs which results in economic growth

through the exploitation and creation of new opportunities.

However, even with entrepreneurship benefitting different stages in the

process of economic development to different extents, “the result that poorer

countries fail to benefit from entrepreneurial activity does not imply that

entrepreneurship should be discouraged in those countries” (André van Stel). Rather

that the factors to allow small businesses to develop into larger corporations must be

put into place. This being said, the circumstances must be right, and the government

must have policies evening the playing fields between larger corporations and

entrepreneurs. Otherwise, entrepreneurs get overrun by the larger competition

companies before the new entrepreneurs even have the chance to advance in

business and bring the countless benefits to communities that come through

entrepreneurs.

All in all, entrepreneurs of one generation lead the way for the next

generation's entrepreneurs. As has been seen with so many modern services that

were once the product of someone’s entrepreneurship but now improve modern

entrepreneurs’ ability to create and run new businesses. For example, “express-mail

services, photocopying services, personal computers, the internet, web services, and

mobile phone services make it less expensive and less time consuming for

geographically separate individuals to exchange information” (Acs) . With these new

capacities and easier modes of information and product exchange, entrepreneurship

has become a real source of potential in the expansion and development of

economies. However, “even in innovation-driven economies, only 1-2% of the work

force starts a business in any given year” (Kritikos). Nonetheless, even being such a

small percentage of a nation's overall workforce, entrepreneurs assist in developing

the national economy as they keep the economy growing and progressing . Especially

in times of economic distress as seen recently, entrepreneurs become even more

important as ground-breaking products are developed that create new job

opportunities and increase competition which drives businesses and therefore grows

the economy.

All in all, to be an entrepreneur is to have a hand in the future and to create a

better world for everyone living now and everyone to come . Entrepreneurs through
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their efforts lead society as they develop new opportunities and expand industries for

the workers of today while adding a steppingstone into the world’s ultimate goal of

technological progress. Entrepreneurs build their country through their dedication and

hard work. With these qualities, they serve communities throughout the world through

providing jobs, holding existing corporations to a higher standard, and moving the

world forward by developing better technology .

Works Cited

Acs, Zoltan. “How Is Entrepreneurship Good for Economic Growth?” Innovations: Technology,

Governance, Globalization, vol. 1, no. 1, 23 Feb. 2006, pp. 97–107.,

https://www.mitpressjournals.org/doi/pdf/10.1162/itgg.2006.1.1.97. Accessed 23 March

2020.

Adusei, Michael. “Does Entrepreneurship Promote Economic Growth in Africa?” African

Development Review, vol. 28, no. 2, June 2016, pp. 201–214. EBSCOhost, https://web-b-

ebscohost-com.sinclair.ohionet.org/ehost/pdfviewer/pdfviewer?vid=1&sid=c7525b6b-

835c-4e7f-8eb9-9eab08eac7a3%40pdc-v-sessmgr01. Accessed 23 March 2020.

André van Stel, et al. “The Effect of Entrepreneurship on National Economic Growth: An

Empirical Analysis Using the GEM Data Base.” Scales Research Reports, 2004.

EBSCOhost, search.ebscohost.com/login.aspx?direct=true&db=edsrep&AN=edsrep.

p.eim.papers.n200320&site=eds-live. Accessed 23 March 2020.

Carter, Majora. 3 Stories of Local Eco-Entrepreneurship. TED, 2011,

https://www.ted.com/talks/majora_carter_3_stories_of_local_eco_entrepreneurship#t-

1059917. Accessed 23 March 2020.

Hamdana, Allam, et al. “Entrepreneurship and Economic Growth: Literature Review.”

International Journal of Psychosocial Rehabilitation, vol. 24, no. 3, July 2020, pp. 937–

943. EBSCOhost, search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=1

42229599&site=eds-live. Accessed 23 March 2020.

Kritikos, and Alexander S. “Entrepreneurs and Their Impact on Jobs and Economic Growth.”

IZA World of Labor, 1 May 2014, wol.iza.org/articles/entrepreneurs-and-their-impact-on-

jobs-and-economic-growth/long. Accessed 23 March 2020.