Might standard wisdom that only innovation matters for

economic growth be mistaken?Historically, countries with sustained R&D expense have grown faster than others

But, in recent years, some countries with…significant R&D expense have faced little/no growth

others with virtually no R&D expense have faced significant growth

Entrepreneurs & Economic GrowthEntrepreneurs are the lubricant at the core of the growth process

The presence of entrepreneurs is a necessary condition for growth

But entrepreneurship cannot be reduced to technological innovation

And growth can take place even in the absence of R&D expenditure

Entrepreneurial TypesEntrepreneurs are arbitragers who incur upfront costs in the hope of realizing profits

They can be imitative or research-based

All incur the expense necessary to setup and operate the business

Research-based ones, unlike imitative ones, incur R&D costs

as their goods enjoy a (limited) monopoly position

Yet both Types Contribute to Technological Innovation

Research-based entrepreneurs contribute directly

Imitative entrepreneurs contribute indirectly by threatening the rent of the research-based ones and giving them incentives to continue innovating to stay ahead of competition

Impact of Imitation on Economic Growth

Increasing the imitation rate increases growth if

cost of innovation is relatively high, and research-based and imitative entrepreneurs exhibit different levels of productivity

In many poor or less developed countries, R&D is costly and unproductive

imitative entrepreneurship can promote growth

0

1

Economic Growth

zero growth

positive growth

negative growth

Entrepreneurial Types

more R&D

more imitation

0

1

m

1 - m

m = % of imitative entrepreneurs in the entrepreneurial labor force1 – m = % of research-based entrepreneurs

When IP laws are not enforced, does it reduce or augment research-based entrepreneurship?

lack of IP laws eliminates the advantage enjoyed by research-based over imitative entrepreneursIn our model, the imitation rate would increase

The question then becomes: When IP laws are not enforced and imitative e-ship increases relative to research-based e-ship, what happens to growth?

Policy ImplicationsMost policy intervention focuses on high-tech because it often yields higher/faster returns

Focus on R&D may distract policy makers (& resources) from imitative entrepreneurship when beneficial

Governments worldwide are sinking capital in the pursuit of entrepreneurial policies that may have little effect on the conditions of a country

Next: The Role of InstitutionsIf entrepreneurs are crucial for growth, it is important to understand what institutions are more conducive to entrepreneurship

Individuals act very differently under different sets of institutions

Institutions determine the relative payoffs to various opportunities and direct entrepreneurs toward those activities with the highest payoffs