This thesis aims to investigate whether entrepreneurship is an adequate tool for developing countries to propel economic growth and bring forth economic development. The theory of economic growth and development demonstrates that productive entrepreneurship is important to increase productivity and foster structural economic transformation if a sufficient institutional framework is in place. Empirical evidence examining the effect of entrepreneurship on economic growth and development is difficult to establish and yields ambiguous results. It is revealed that developing countries fail to generate growth and development from their high rates of entrepreneurial activity. Only employment creating “high-growth entrepreneurship” is identified to positively influence economic growth. It is shown that enhancements of institutions and well-targeted policies could help developing countries to generate more growth-oriented entrepreneurship.
Table of Contents
1. Introduction
2. Entrepreneurship – Concepts and definitions
2.1 Behavioral definitions
2.2 Occupational definitions
2.3 Synthesis definitions
3. Entrepreneurship in theories of economic growth and development
3.1 The neoclassical and the new growth theory
3.2 Porters Diamond Model
3.3 Structural economic transformation
3.4 Unproductive and destructive entrepreneurship
4. Empirical evidence
4.1 Measuring entrepreneurship
4.2 The impact of entrepreneurship on economic growth and development
4.2.1 Self-employment
4.2.2 New firm entry
4.2.3 GEM data
4.2.4 Knowledge-spillovers
4.2.5 Country-specific evidence
4.3 Intermediate conclusion
5. Promoting high-growth entrepreneurship in developing countries
5.1 The role of formal institutions
5.2 Policy advice
6. Conclusion
Objectives and Research Focus
This master's thesis investigates whether entrepreneurship serves as an effective instrument for developing countries to accelerate economic growth and foster development. The research evaluates the impact of various forms of entrepreneurial activity—ranging from necessity-driven to high-growth entrepreneurship—within the context of varying institutional frameworks and developmental stages.
- The theoretical link between entrepreneurship and long-term economic growth.
- The distinction between productive, unproductive, and destructive entrepreneurial activities.
- Empirical evidence on how different entrepreneurial metrics correlate with economic performance in developing versus developed economies.
- The mediating role of formal institutions (rule of law, property rights, and infrastructure) in shaping the impact of entrepreneurship.
- Policy recommendations for fostering growth-oriented, high-impact entrepreneurship in developing regions.
Excerpt from the Thesis
3.4 Unproductive and destructive entrepreneurship
Baumol’s work from 1990 is probably the best known paper concerning the effects of different forms of entrepreneurship and was already mentioned in section 2.2. As institutions shape entrepreneurial behavior, whereas developing countries often lack a sufficient institutional framework, the concept of unproductive and destructive entrepreneurship is omnipresent in developing countries. Thereby, however, it is important to discern between unproductive and destructive entrepreneurship. Whereas unproductive entrepreneurship is mainly described as rent-seeking activity (Baumol, 1990; Desai and Acs, 2007) which is observed in both developed and developing economies, destructive entrepreneurship is rent-destroying and especially present in the latter. As outlined by Desai and Acs (2007), unproductive entrepreneurship has no effect on GDP whereas destructive entrepreneurship has a negative impact on GDP.
Some economists like Murphy et al. (1991) distinguish between rent-seeking and entrepreneurship they describe destructive entrepreneurship simply as criminal activities. This view might apply to developed countries with a strong rule of law, where criminals have to operate on the fringes of society. In developing countries on the other hand destructive entrepreneurship is in some ways legitimized due to lacking alternatives. Most of the models described in section 3.2 assume the possibility of an occupational choice between wage and self-employment. But as already mentioned in section 2.2, in developing countries many occupational choices are made strictly out of necessity. Desai and Acs (2007) take this into consideration when they build upon Baumol’s (1990) framework. Instead of focusing on redistributive rent-seeking behavior of lawyers and bankers, their framework concentrates on the primary and secondary sector which makes it suitable for developing countries.
Summary of Chapters
1. Introduction: Outlines the research objective of examining entrepreneurship in developing countries and the thesis structure.
2. Entrepreneurship – Concepts and definitions: Defines entrepreneurship through behavioral, occupational, and synthesis approaches to distinguish between various roles entrepreneurs play.
3. Entrepreneurship in theories of economic growth and development: Analyzes economic growth models, including neoclassical, Porter’s Diamond, and structural transformation theories, to identify how entrepreneurship influences development.
4. Empirical evidence: Reviews existing data and studies to demonstrate the ambiguous relationship between entrepreneurial activity and economic growth in developing countries.
5. Promoting high-growth entrepreneurship in developing countries: Discusses the role of formal institutions and provides policy advice for fostering productive entrepreneurship.
6. Conclusion: Summarizes findings, noting that institutional enhancements are critical to converting high entrepreneurial activity into sustainable growth.
Keywords
Entrepreneurship, economic growth, economic development, developing countries, institutional framework, productive entrepreneurship, rent-seeking, necessity entrepreneurship, opportunity-driven entrepreneurship, high-growth entrepreneurship, structural transformation, human capital, innovation, empirical evidence, policy design.
Frequently Asked Questions
What is the core subject of this thesis?
The thesis examines whether entrepreneurship acts as an effective catalyst for economic growth and development within the specific context of developing countries.
What are the primary thematic areas?
Key areas include the theoretical definitions of entrepreneurship, its role in economic growth models, empirical analysis of entrepreneurial activity across different country types, and the impact of institutional quality.
What is the central research question?
The research asks if entrepreneurship is an adequate tool for developing nations to propel economic growth and development, given their distinct institutional environments.
Which scientific methods are employed?
The thesis conducts a literature survey and a synthesis of empirical evidence from various research consortia, such as the Global Entrepreneurship Monitor (GEM) and other economic indices.
What does the main body cover?
It covers theoretical frameworks of entrepreneurship, critiques of common growth models, empirical data analysis regarding the link between entrepreneurship and GDP, and the importance of institutions in directing entrepreneurial efforts.
Which keywords characterize the work?
Core keywords include entrepreneurship, economic growth, economic development, developing countries, and institutional framework.
How does the author define unproductive versus destructive entrepreneurship?
The author follows Baumol's distinction: unproductive entrepreneurship (e.g., rent-seeking) has no effect on GDP, while destructive entrepreneurship (e.g., criminal activities) has a direct negative impact on economic output.
Why is the "Diamond Model" by Porter included in this research?
It is included because it emphasizes the necessity of domestic rivalry and the creation of specialized factors of production, both of which require new firm entry and entrepreneurial dynamism.
What role do institutions play according to the findings?
Institutions are found to be critical; they establish the "rules of the game" that determine whether individuals engage in productive, innovative activities or wasteful, rent-seeking behaviors.
What is the author's primary policy recommendation?
The author suggests that developing countries should prioritize institutional enhancements—specifically stable property rights and rule of law—to redirect high rates of informal or survivalist entrepreneurship toward productive, growth-oriented ventures.
- Quote paper
- Martin Fenkl (Author), 2018, Entrepreneurship in developing countries, Munich, GRIN Verlag, https://www.grin.com/document/460858
