Entrepreneurship for Economic Growth A Review of Current Findings and Implications.

Entrepreneurship for Entrepreneurship for Economic GrowthEconomic Growth

A Review of Current Findings and Implications

The ArgumentThe Argument

If there is a causal relationship between entrepreneurial development and economic growth, then government policy should support entrepreneurial development

There is a causal relationship between entrepreneurial development and economic growth

Therefore, Government policy should support more entrepreneurial development

Inherent Assumptions and ChallengesInherent Assumptions and Challenges

Is there a causal relationship between entrepreneurial development and economic growth. What evidence is there to support this?

What are the determinants of this causal relationship?

Does Government Policy currently support entrepreneurial development, and how?

What further steps should be taken to support entrepreneurial development?

ContentsContents

Causal Relationship: Evidence Determinants: GEM 2000 study Determinants: IADB study Characteristics of LA entrepreneurs Characteristics of Dynamic Enterprises Policy Implications: GEM 2000 Policy Implications: IADB study Conclusions for Managers and Policy Makers

Causal Relationship: EvidenceCausal Relationship: Evidence

The GEM 2000: Significant relationship controlling for import/export and agricultural economies.

Half of the difference in levels of economic growth can be explained by variation in levels of entrepreneurship.

There is no single catalyst to economic growth (i.e. entrepreneurship is not the single key)

Between nascent firms and new firms, new firms tend to have the strongest association with economic growth

Causal Relationship: EvidenceCausal Relationship: Evidence

* GEM 2000

ContentsContents


Determinants: GEM 2000 StudyDeterminants: GEM 2000 Study

Demography– Population growth or

decline– Structure of the population

Economic Order– Government Presence– Employment– Education– Participation of Woman

Entrepreneurial Framework Conditions– Entrepreneurial

Opportunity– Entrepreneurial Capacity– Social Legitimacy– Finance– Information Technology

DemographicDemographic

* GEM 2000

Economic OrderEconomic Order

Government Presence– Tax revenue as a % of GDP is lowest in “High” group– Role of the state in the overall economy is less in

countries with “High” levels of entrepreneurs Employment

– High cost of employment, rigid labor markets are deterrents to new, growing firms

Education– Strong link between post-secondary education and

entrepreneurship

Economic OrderEconomic Order

Participation of Woman

* GEM 2000

Entrepreneurial Framework Entrepreneurial Framework ConditionsConditions

Entrepreneurial Opportunity– Perception of opportunity is highly correlated with

Entrepreneurial Activity Entrepreneurial Capacity (Motivation and Skill)

– Expert opinion indicates a relationship between experts perceived lack of entrepreneurial skill and new business creation

Social Legitimacy– In entrepreneurial countries, people are less likely to

resent wealthy entrepreneurs.


Social Legitimacy

* GEM 2000


Finance

* GEM 2000


Information Technology

* GEM 2000

ContentsContents


Determinants: IADB StudyDeterminants: IADB Study

Culture does NOT play an active role Educational system does not promote the learning of a

whole set of competencies Previous work history is relevant, indicating differing

productive capacities may affect entrepreneurship Productive structures and entrepreneurial strategies

influence opportunities available Network are fundamental Financial conditions are often a bottleneck Regulatory obstacles and red tape negatively affects

startup.

ContentsContents


Characteristics of L.A. EntrepreneursCharacteristics of L.A. Entrepreneurs

Number of partners at start-up (see graph)Middle aged man, average 42, with high

level of education (60% had a professional degree)

1 in 10 was a womanOften formerly employed in similar sector4 in 10 have founded previous business

ContentsContents


Characteristics of L.A. EnterprisesCharacteristics of L.A. Enterprises

2 in 3 become dynamic enterprises with 15 workers On average around 6 years old 75% are located in metropolitan areas Mostly conventional manufacturing activities Knowledge based sector accounts for 1/3 of

enterprises Dynamic firms show stronger growth and export

drive 75% of the cases had initial investment < $100,000

Characteristics of Dynamic EnterprisesCharacteristics of Dynamic Enterprises

Inception Stage: Network of contacts Role ModelsStart ups Presence of teams of

entrepreneurs with specialized skills and functions

Generalized use of personal savings

Generally started companies around age of 30

Numerous networks for non-monetary resources

Early Stage Development Presence of entrepreneurial

teams Distinctive problems and

challenges hiring managers and certifying quality

Current Government Policy in Latin Current Government Policy in Latin AmericaAmerica

Strengthen mature companies to face prevailing challenges

Micro-enterprise level support through training and consulting services.

Facilitate access to credit through subsidized interest rates, deposit guarantee schemes, and micro-financing, but;

ECLAC study concluded these programs were insignificant.

ContentsContents


Policy Implications: GEM 2000Policy Implications: GEM 2000

Gear Policy towards enhancing entrepreneurial capacity (skills and motivations)

Increase the participation of woman in entrepreneurship. Encourage involvement of people younger than 25 Ensure conducive economic system (less government, low tax

rates, flexible labor markets, fewer regulatory burdens) Encourage formal venture capital, and private investment in

early stage business Invest in educational system Make system “Incentive based” verse “Support based” Create a strong culture of entrepreneurship that values and is

supportive of entrepreneurs

ContentsContents


General Implications: IADBGeneral Implications: IADB

The number of Dynamic enterprises must be increased and the conditions for growth must be improved.

Work experience and networks are key factors to consider in policies to promote dynamic new enterprise

Promotion must address the critical factors which affect the entrepreneurial process, and be adjusted to appropriate institutional and national context

Promotion should be viewed as a social investment with long term impact: though short-term initiatives are useful to demonstrate results

Specific implications and Specific implications and recommendations recommendations

Broaden the base of future dynamic entrepreneurs Develop two key assets: entrepreneurial networks and teams Make the inception period shorter in order to accelerate the

business creation process Reduce barriers to the creation and development of new

companies– Build a solid infrastructure of venture finance– Reduce red tape and compliance costs involved in start-up– Help entrepreneurs resolve the initial problems of business start-up– Modify the existing incentives for SME’s to meet the specific needs of

new businesses Strengthen the institutional context to promote entrepreneurship

ContentsContents


Conclusions for Managers and Policy Conclusions for Managers and Policy MakersMakers

Entrepreneurship is not the only tool, but a significant tool in shaping government policy to drive economic growth

Entrepreneurial growth is dynamic, and dependent on country specific variables and initiatives. (E.S.I)

Entrepreneurship support initiatives should be developed at the Government and NGO level to further manage the variable identified in these reports.

Backup SlidesBackup Slides

TEA Index (Total Entrepreneurial Activity)TEA Index (Total Entrepreneurial Activity)

Computed by adding the proportion of adults involved in the creation of nascent firms and the proportion involved in surviving firms

Standardized Index

Causal Relationship: Entrepreneurial Causal Relationship: Entrepreneurial Development and Economic GrowthDevelopment and Economic Growth

* GEM 2000

Factors and Stage in Entrepreneurial Factors and Stage in Entrepreneurial Growth Growth

Main individuals who helped identify Main individuals who helped identify business opportunitiesbusiness opportunities

Occupations of key individuals Occupations of key individuals who helped identify business who helped identify business

opportunityopportunity

Number of individuals who helped Number of individuals who helped identify business opportunityidentify business opportunity

Type of Information GatheredType of Information Gathered

Factors influencing decisions to Factors influencing decisions to begin: Dynamic vs Less Dynamicbegin: Dynamic vs Less Dynamic

Networks and Non Monetary Networks and Non Monetary ResourcesResources

Financial Sources Used Financial Sources Used

Intensity of Competition in Early Intensity of Competition in Early DevelopmentDevelopment

Size of Competitors during Early Size of Competitors during Early DevelopmentDevelopment

Financing Sources during Financing Sources during early Developmentearly Development

Main Problems Enterprises face: Main Problems Enterprises face: Early DevelopmentEarly Development

BibliographyBibliography

“Entrepreneurship in Emerging Economies: The Creation and Development of New Firms in Latin America”, Inter-American Development Bank, March 2002.

“Global Entrepreneurship Monitor, 2000 Executive Report”, Babson College, Kauffman Center, London School of Business

“Supporting Entrepreneurship in Developing Countries: Survey of the Field and Inventory of Initiatives”, bridges.org for the Business Enterprise and Entrepreneurship Working Group, May 2002.

Entrepreneurship for Economic Growth A Review of Current Findings and Implications.

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