TO BE OR NOT TO BE? The Role of Entrepreneurship for Economic Growth

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: Despite the worldwide importance of entrepreneurship, economic research on this topic has been only fragmented so far. Therefore, the goal of this study was firstly to find a common ground between the established neoclassical, endogenous and institutional growth frameworks on the one hand and the entrepreneurial school on the other hand. For this purpose the distinctive models developed by Solow, Romer and Porter were reviewed in order to uncover possible similarities with entrepreneurship according to the seminal works of Schumpeter and Kirzner. The models were then consolidated subject to the gained insights. Secondly, the hypothesis was tested whether entrepreneurship is good for growth. Thus, the above models were furnished with fitting data and subsequently estimated. The estimation results confirm the general implications of the growth models that capital accumulation is growth enhancing while countries that are closer to their steady state equilibrium experience a growth slow-down. Further, the production of knowledge appears to have merely a weak and positive influence of growth. Differences in institutions are also responsible for varying growth rates. The hypothesis that overall high levels of entrepreneurship have a positive effect on growth was rejected. However, a closer look at different types of entrepreneurship reveals that the effect on growth depends on which kind of entrepreneurship we are looking at. Entrepreneurship in sectors with predominantly large scale production and increasing returns to scale is in fact good for growth. Entrepreneurship in services however is either inconclusive regarding growth rates or shows a negative trend.

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