Why entrepreneurship is important to economic development

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Get reports and updates from Cytonn Investments about trends in the market and industries. Visit Cytonn Report. Real Estate Real Estate. Videos Testimonials. Our Presence Our Presence. Sponsorship Sponsorship. WhistleBlower WhistleBlower. The role of entrepreneurship in any economy is critical, as it contributes to the socio-economic development of societies in various ways, including Identifying existing opportunities in the market - Through production and distribution of goods and services, entrepreneurial ventures seek to satisfy client needs and improve livelihoods.

How Entrepreneurship Benefits an Economy Economic development means a process of upward change whereby the real per capita income of a country increases over some time. Impact of Entrepreneurship on Economy and Society To know the role of entrepreneurship on economy and society, click here: Why entrepreneurship is important to the economy: 1.

Spurs economic growth When entrepreneurs build businesses, it affects every part of the economy. Adds national income As new businesses or enterprises boom, it creates opportunities for people. Generates employment opportunities Business enterprises are one of the biggest sources of jobs in a nation. Innovation Entrepreneurship is like an incubator of innovation.

Impact on community life The establishment of an enterprise helps promote numerous retail facilities, a higher level of homeownership, fewer slums, better sanitation standards, and higher expenditure on education, recreation, and religious activities.

Thus, entrepreneurship leads to more stability and a higher quality of community life. Better standard of living The standard of living is a concept built on an increase in the amount of consumption of a variety of goods and services over a particular period by a household.

Tech Business Ideas for Startup Entrepreneurs? To know more about it, click here: Ways in which entrepreneurship can combat unemployment: Entrepreneurship and unemployment are interrelated.

Entrepreneurship reduces unemployment in the following ways: The decline in the economic growth and fall of the economy into recession is usually associated with a higher level of the unemployment rate and a decrease in salaries. And a new enterprise needs numerous people to perform different roles according to their skills hence this leads to providing jobs to them directly as well as indirectly.

When an enterprise is running successfully, it motivates the entrepreneur to set up a new branch at some other place leading to more new job opportunities. And Small businesses tend to hire people in their neighborhood result in the elimination of unemployment An entrepreneur's living standard motivates youths to start their own business instead of working for someone else and it results in the creation of more job opportunities.

For those in poverty, for whom a good-paying traditional job is not available or feasible, starting a business may be their best option. New skills are also needed for new products and this opens up the job market for scarce skills. Read more ways by which business can help tackle unemployment by clicking on the below link: 8 ways business can help tackle unemployment How can a business make a difference in the employment and skills crisis?

How Entrepreneurship Can Solve the Problem of Unemployment Lack of employment opportunities, unfavorable working terms and conditions, exploitation, non-professional skills, less technical, and various other clauses contribute to unemployment. Contributor: Jyotsana Rani Jyotsana is very keen to express her views on new topics and wants readers to remember her through her writing. Question or Message. Read more articles written by the author. Read More in Startup Basics Category.

Such an installation will ensure people are able to focus on their core jobs without worrying about a basic necessity like carrying water. More time to devote to work means economic growth. For a more contemporary example, smartphones and their smart apps have revolutionised work and play across the globe. Smartphones are not exclusive to rich countries or rich people either. As the growth of China's smartphone market and its smartphone industry show, technological entrepreneurship will have profound, long lasting impacts on the entire human race.

Moreover, the globalization of tech means entrepreneurs in lesser-developed countries have access to the same tools as their counterparts in richer countries. They also have the advantage of a lower cost of living, so a young individual entrepreneur from an underdeveloped country can take on the might of the multi-million-dollar existing product from a developed country. Entrepreneurs regularly nurture entrepreneurial ventures by other like-minded individuals.

They also invest in community projects and provide financial support to local charities. This enables further development beyond their own ventures. Some famous entrepreneurs, like Bill Gates, have used their money to finance good causes, from education to public health. The qualities that make one an entrepreneur are the same qualities that motivate entrepreneurs to take it forward.

Are there any drawbacks to cultivating entrepreneurs and entrepreneurship? Italy may provide an example of a place where high levels of self-employment have proved to be inefficient for economic development.

Research reveals that Italy has in the past experienced large negative impacts on the growth of its economy because of self-employment. There may be truth in the old saying, "too many chefs and not enough cooks spoil the soup.

Regulations play a crucial role in nurturing entrepreneurship, but regulation requires a fine balancing act on the part of the regulating authority. Unregulated entrepreneurship may lead to unwanted social outcomes including unfair market practices, pervasive corruption, financial crisis and even criminal activity.

The benefits to society will be greater in economies where entrepreneurs can operate flexibly, develop their ideas, and reap the rewards. Entrepreneurs respond to high regulatory barriers by moving to more innovation-friendly countries or by turning from productive activities to non-wealth-creating activities.

To attract productive entrepreneurs, governments need to cut red tape, streamline regulations, and prepare for the negative effects of layoffs in incumbent firms that fail because of the new competition. When an economy is doing well, there is less incentive to encourage new, entrepreneurial firms. When people and firms are making money, why take a risk on something new and untested? Entrepreneurs often challenge incumbent firms, and while this might seem undesirable, unchallenged, established firms tend to become complacent, content to take their profits without investing in research and development to improve their business.

These stagnating firms are the first to suffer when imports arrive—withering rapidly, unable to respond to the competition. Thus, challenging incumbents to do better during good economic times is a benefit of entrepreneurship.

Entrepreneurs are equally, if not more, important when the economy is doing badly. When unemployment is high and the economy is contracting or stagnating, dynamic entrepreneurship could help turn the economy around. By developing novel products or increasing competition, new firms can boost demand, which could in turn create new job opportunities and reduce unemployment.

If entrepreneurs are consistently encouraged, in bad economic times as well as good, then all businesses are kept on their toes, motivated to work continuously to improve and adapt see Different types of entrepreneurs. Entrepreneurs are the fresh blood that keeps economies healthy and flourishing even as some individual firms fail.

Capitalist economies are not alone in encouraging entrepreneurs. They have discovered that entrepreneurial activities, once viewed as a threat to the established system, are crucial for maintaining economic competitiveness and for achieving long-term success. Entrepreneurs introduce innovations and induce economic growth Entrepreneurs often create new technologies, develop new products or process innovations, and open up new markets [1].

Radical innovations often lead to economic growth [2]. Entrepreneurs who bring innovations to the market offer a key value-generating contribution to economic progress.

Compared with incumbent firms, new firms invest more in searching for new opportunities. Existing firms might be less likely to innovate because of organizational inertia, which numbs their responsiveness to market changes, or because new goods would compete with their established range of products. Incumbent firms often miss out, sometimes intentionally, on opportunities to adopt new ideas because of the fear of cannibalizing their own markets.

For inventors and innovators who sometimes come from established firms setting up their own business often appears to be the only way to commercialize their ideas. By establishing new businesses, entrepreneurs intensify competition for existing businesses. Consumers benefit from the resulting lower prices and greater product variety.

Researchers have developed a measure of market mobility, which identifies the effects of new business formation on existing firms [3]. A change in the ranking of established firms by number of employees indicates a transfer of market share and higher market mobility. This effect is particularly strong when considering entrepreneurial activity five years prior to the start-up, which points to a substantial time lag in the effect of start-ups on market mobility.

Furthermore, new business formation has an indirect competition-enhancing effect by pushing established firms to improve their performance. Entrepreneurs stimulate employment growth by generating new jobs when they enter the market. Research has shown after disentangling all the potential effects that beyond this immediate effect there is a more complicated, S-shaped effect over time Figure 1 [4].

There is a direct employment effect from new businesses that arises from the new jobs being created. Following this initial phase, there is usually a stagnation phase or even a downturn as new businesses gain market share from existing firms that are unable to compete and as some new entrants fail. After this interim phase of potential failure and displacement of existing firms, the increased competitiveness of suppliers leads to positive gains in employment once again.

About ten years after start-up, the impact of new business formation on employment has finally faded away. Competition between new and existing firms ideally leads to survival of the fittest. Even though overall employment may decline, new firms can foster productivity [6].

This happens for two reasons. First, new firms increase competition in the market and thus diminish the market power of incumbent firms, forcing them to become more efficient or go out of business. Second, only firms with a competitive advantage or firms that are more efficient than incumbents will enter the market.

The subsequent selection process forces less efficient firms both entrants and incumbents to drop out of the market.