A Review of the Role of Entrepreneurship in Stimulating Economic Growth

1 January 2017

They also further states that entrepreneurs have been responsible for growth and development over the centuries and are identified as the key role players in the economy of every country. The paper identifies the different definitions of an entrepreneur which are identified as the different channels in which entrepreneurship lead to economic growth, reduced unemployment and increased levels of income among countries. As a result of the role of entrepreneurship in any country, most countries emphasises on integrating entrepreneurial activity in its economic policy.

A discussion is made on developing economies mainly South Africa, China, Brazil and Russia comparing the entrepreneurial activity within the economies. Economic growth is best defined as a long-term expansion of the productive potential of the economy. It is measured by the comparing the difference between the Gross National Product (GNP) in a year with the GNP of the previous year. A growing economy is when the difference is positive. The term simply refers to an increase in the ability to produce goods and services.

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It is easier to define unemployment when there is an understanding of the term economic growth. Unemployment refers to when a person who is actively searching for employment cannot find work to do. This is an instrument used to determine the healthiness of an economy. After knowing the levels of unemployment in an economy, determining the level of income distribution becomes a bit projected. The level of income in an economy refers to the way in which in money is distributed among the population in an economy.

The above three defined terms has a link to each other. The level of economic growth have a direct proportional influence on the possible jobs available in the economy while a reciprocal relationship exist between the level of income in the particular economy and levels of unemployment. The level of income is directly proportional to economic growth. Also, the level of unemployment is directly proportional to the level of income in an economy. However, all the above aspects are influenced by the level of entrepreneurship in the particular economy.

An economy with high activity of entrepreneurship is more likely to be characterized by high economic growth, reducing levels of unemployment and increasing levels of income while an economy with low entrepreneurial activity on the other hand can be characterized by low economic growth, high levels of unemployment and low levels of income. Entrepreneurship cannot be separated from the following terms “economic growth”, “employment” and “country income level distribution” as all the entrepreneurial activities contribute largely to economic growth, levels of employment and income distribution.

Different nature of entrepreneurs stimulates the growth of an economy in different ways. In any country with high levels of entrepreneurial activities or which experienced high entrepreneurial activity, the economy tends to be of middle to high income and the unemployment levels tend to be decreasing if not low. However, economies with low income distribution are characterised by low entrepreneurial activities and mostly, there are significant levels of unemployment. Such low income economies have high records of poverty which leads them to seek donors.

Different authors made contributions on this topic and this paper compares and links the information obtained into a comprehensive review. The term entrepreneurship has been defined by Schumpeter (1934) as lying in the perceptions and exploration of new opportunities in the realm of business. He further states that it always has to do with bringing about a different use of resources in that they are withdrawn from their traditional employ and subjected to new combinations. Schumpeter relates entrepreneurship to be influenced by entrepreneurs who are innovative and hese people have to be extra-ordinary as they have to come up with extra-ordinary events. They come up with new technological possibilities hence are able to establish large businesses from these. Carland etal. (1984) confirms that an entrepreneur is someone innovative and further says that he or she employs strategic management practices in the business. Timmons (2000) believes entrepreneurship as the process of creating and seizing an opportunity and pursuing it, regardless of resources currently controlled.

Nieman and Nieuwenhuizen (2009) define an entrepreneur as the person who sees an opportunity in the market, gathers resources and creates and grows a business venture to meet these needs. They also further states that he or she bears risk of the venture and is rewarded with profit if it succeed. With different definitions of entrepreneurship defined by different authors through the way they define an entrepreneur, the researcher generally defines entrepreneurship as the act of being an entrepreneur who establishes business through the organisation of resources taking risk with the aim of realising profit.

The Schumpeterian entrepreneur as defined above is innovative. In support for this, Curran and Stanworth (1989) defines entrepreneurship as the creation of new economic entity centred on a novel product or service or, or at the very least, one which differs significantly from products or services offered elsewhere in the market. Such entrepreneurs play a very crucial role in stimulating economic growth. They come up with huge organisations which can be monopolies in the economy.

With the nature of big businesses, they would be more likely to produce large volumes of product increasing the GNP thereby contributing significantly to economic growth. With their capacity to produce large volumes, such organisation would take considerable number of employees hence reducing unemployment. By employing people, such entrepreneurs contribute to the increased levels of income in an economy. Another author Kirzner presents a different way in which entrepreneurship can be influenced by an entrepreneur through the way he defines an entrepreneur.

According to Kirzner, the entrepreneur is someone who is alert to profitable opportunities for exchange. Such an entrepreneur believes in gathering the needed information, refining and providing it to those in need of it. Such entrepreneurs act as intermediaries for example between suppliers and customers. They are also very important in the growth of an economy as they facilitate inception, incubation of businesses through the provision of supportive information.

The information they provide acts as a catalyst into venturing into business and builds confidence to emerging businesses. Emerging businesses require business support for them to have high chances of success hence the Kirzner entrepreneur makes the perfect match for such new businesses whose success lies on business support services. Such an entrepreneur can offer business support services such as business counselling, business mentoring and business incubation.

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