The Interactions between Entrepreneurship and Economic Growth In the Developed Countries

Abstract

Entrepreneurship has been widely considered as an engine for economic development. In some countries, it shapes more than the half of the GDP regardless of the country’s economic status. Nonetheless, the term entrepreneurship suffers from the lack of a standardized definition; which makes it more subjective and difficult to decide what measure to utilize. Previous studies have relied heavily on the business ownership ratio as a proxy of entrepreneurship. This generalized approach, however, is questionable as it ignores the fact that there are different types of entrepreneurship. Each type has its motive and its own consequence on the economy. Consequently, although the majority of economists and policy makers are aware about the importance of the entrepreneurship, there is some vagueness on what specific kind of entrepreneurial activities is appropriate to foster. Thus, in order to introduce the term in a more comprehensive manner, this study classified entrepreneurship into three types: necessity based entrepreneurship, opportunity based entrepreneurship and intrapreneurship. Necessity based ventures are launched by those who were forced to do so because they do not have any other alternatives to make a living. On the other hand, opportunity based ventures are launched by those who believed there was an opportunity to capture. Lastly, intrapreneurship was referred to the entrepreneurial practices led by the employees of incumbent firms. The main objective of the current study was to determine the correlation of each of the mentioned types on economic growth in the developed countries. A multiple regression analysis was conducted at the country level for 26 developed countries. The data was collected from the World Bank and the Global Entrepreneurship Monitor. It was revealed that intrapreneurship and opportunity based entrepreneurship are positively corelated with economic growth; notwithstanding, the latter was not statistically significant. Alarmingly, the analysis revealed that necessity based entrepreneurship has a significant negative relationship with economic growth. This study gave a clue to the policy makers to reconsider what type of entrepreneurship is appropriate to foster. In addition, it enables them to predict the economic growth level with regarding to the changes occurred with each type of entrepreneurship.