Transcript Entrepreneurship for Economic Growth

Entrepreneurship for
Economic Growth
A Review of Current Findings and
Implications
The 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 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?
Contents








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
Contents








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: 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: Evidence
* GEM 2000
Causal Relationship: Evidence
* GEM 2000
Contents








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
Determinants: GEM 2000 Study

Demography
– Population growth or
decline
– Structure of the population

Economic Order

Entrepreneurial
Framework Conditions
– Entrepreneurial Opportunity
– Entrepreneurial Capacity
– Social Legitimacy
– Government Presence
– Finance
– Employment
– Information Technology
– Education
– Participation of Woman
Demographic
* GEM 2000
Economic 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 Order

Participation of Woman
* GEM 2000
Entrepreneurial Framework
Conditions

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.
Entrepreneurial Framework
Conditions

Social Legitimacy
* GEM 2000
Entrepreneurial Framework
Conditions

Finance
* GEM 2000
Entrepreneurial Framework
Conditions

Information Technology
* GEM 2000
Contents








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
Determinants: 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.
Contents








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
Characteristics 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 woman
 Often formerly employed in similar sector
 4 in 10 have founded previous business
Contents








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
Characteristics 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 Enterprises
Inception Stage:
 Network of contacts
 Role Models
Start 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 nonmonetary resources
Early Stage Development
 Presence of entrepreneurial
teams
 Distinctive problems and
challenges hiring managers and
certifying quality
Current Government Policy in Latin
America

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.
Contents








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
Policy 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
Contents








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
General 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
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
Contents








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
Conclusions for Managers and Policy
Makers

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 Slides
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
Development and Economic Growth
* GEM 2000
Factors and Stage in Entrepreneurial
Growth
Main individuals who helped identify
business opportunities
Occupations of key individuals
who helped identify business
opportunity
Number of individuals who helped
identify business opportunity
Type of Information Gathered
Factors influencing decisions to
begin: Dynamic vs Less Dynamic
Networks and Non Monetary
Resources
Financial Sources Used
Intensity of Competition in Early
Development
Size of Competitors during Early
Development
Financing Sources during
early Development
Main Problems Enterprises face:
Early Development
Bibliography



“Entrepreneurship in Emerging Economies: The Creation
and Development of New Firms in Latin America”, InterAmerican 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.