Abstract

This paper analyzes the results and perceives reference research related to the
role of the level of development of entrepreneurship in the economic
development of a country. Comparative analyzes indicators of entrepreneurial
activity in Bosnia and Herzegovina and selected countries in the region (Slovenia,
Serbia and Croatia). Results of the analysis showed that Slovenia and Croatia
have the highest level of entrepreneurial activity among the analyzed countries.
Finally, the paper explores the link between the level of economic freedom with
entrepreneurial activity and economic prosperity.

1.

INTRODUCTION

Entrepreneurships are now regarded as the generator of the economic growth.
Entrepreneurships are an important driver of economic growth of different
sectors, industries and the economy as a whole. There are significant differences
in levels of entrepreneurship development among the countries. In some
countries there are a growing number of entrepreneurs who establish new
businesses in various industries, while in others very few attempts at starting
new businesses. Entrepreneurial activity varies between countries, but
unquestionable their role is in shaping the economic environment. From the
macroeconomic point of view, entrepreneurships can affect the level of
employment, technological progress of the country, the liberalization of closed
sectors and generally to encourage the development of knowledge. From a
microeconomic point of view, entrepreneurial activity means the creation of new
businesses, creation of new products or services, detecting market niches.

Models of economic growth vary depending on the degree of development of the
country. While developing countries mainly depend on the accumulation of
human capital and specialization as sources of economic growth in the advanced
industrialized economies, economic growth depends on technological progress
and the accumulation of knowledge. Entrepreneurships as a way of adoption and
diffusion of knowledge, ideas and innovation can play a significant role in
achieving economic growth in developing countries and in developed countries.

Ever since Adam Smith it is known that freedom of choice and supply resources,
competition in business, trade and ensuring the rights of ownership are key
prerequisites for economic progress. It can be said that economic freedom is a
fundamental right of every human being and that in the economically free
societies, individuals are free to work, produce, consume and invest, and that
their freedom is guaranteed by the state. Also, in such a society, labor, capital
and goods are allowed to move freely. Economic Freedoms guarantees the right

the right of citizens to dispose of their earned income. .to undertake voluntary activities of trade and commerce without the intervention of the state or other coercion and fraud. the possibility of legal protection of property rights. while the economy under state control consist of a small number of large companies that dominate the economy. Numerous studies have shown that a greater degree of economic freedom results in higher levels of income for residents as freedom increases the opportunities for entrepreneurial activity. Economic freedom is more likely to produce an entrepreneurial economy . with many entrepreneurs and small businesses .

Entrepreneurships are the key to economic prosperity and unfavorable institutional infrastructure may adversely affect the entrepreneurial activity because they are as such an obstacle and not a stimulant for entrepreneurial 1 . forms of organization. This is called the concept of "creative destruction. or combinations of products and markets. In his conception of the entrepreneur loses the character of entrepreneurs as it built. production methods. Others define entrepreneurs as owners of capital who are motivated by the realization of profits for the purpose of undertaking the risk. markets.2. It is a proven link between the institutions of the market economy and entrepreneurships. Profit businesses and consumers depend on the extent to which they approve of the behavior of an undertaking. the entrepreneur is a source of economic changes. Entrepreneurs are considered as revolutionaries of our era. processes. Entrepreneurship can be defined as the ability and willingness of individuals to notice the new economic opportunities and introduce their own ways of exploiting these opportunities in conditions of uncertainty. According to some other concepts. and opened its company after which it settled down and running its own company. Broad consensus was reached that high economic growth is achievable only when the government adopted economic policies that enable enterprises to become the main driver of the economy. entrepreneurship is nothing but the process of decision making under uncertainty. Thus. for example. ENTREPRENEURSHIPS AS A GENERATOR OF ECONOMIC ACTIVITY There is a proven fact that the economy cannot grow and prosper without entrepreneurs. and countries that stimulate entrepreneurial activity and focus on market demand as successful as measured by indicators of economic activity and the level of well-being. or industrial combinations. sources of supply. These opportunities may consist of new products. an entrepreneur is an innovator who introduced new products. By having the opportunities to practice economic freedom. They operate in the context of market conditions and is therefore have limited processes in the market."1 The successful introduction of new products can destroy previously existing products. entrepreneurs are a powerful force in the establishment and maintenance of an open democracy. CDs replaced cassettes. By definition.

lack of education focused on entrepreneurship . more flexible and more adaptable to change. The first is the impact on the quantity and quality of inputs in the entrepreneurial process (education. we can create numerous policies and programs in order to create an entrepreneurial economy and numerous incentives for entrepreneurship development. employing 66. the tax incentive policies. ) . Incentives growing sector of small and medium enterprises. implementation of business incubators. and the costs of adjusting the workforce demands of business operations . These differences arise due to the availability of financial resources . These incentives are usually reflected in the creation of an adequate institutional framework for policies towards SMEs. . The growth of small.5% of the total number of enterprises. etc. ensuring the rule of law. providing consulting services. more innovative. it is important to point out that the success of small businesses need the existence of well. 16 % in less developed countries. In B&H Small Business makes 99. SMEs create 51 % of GDP in developed countries. Given the proven link between entrepreneurial activity and economic growth. There are two different channels through which government policies are affecting entrepreneurial activity. taxation systems countries that have higher entrepreneurial activity have lower tax revenues as % of GDP . Another channel of influence on the institutional structure is so-called „Rules of governing in the entrepreneurial processes“. the development of financial instruments.4 % of total company profits. tax breaks.development. SMEs are more productive. 39 % in middle-income countries.3 % of total employment and accounts for 56. innovative companies has special significance because it leads to faster transfer of knowledge. Also. among other things allow a country to create a solid middle class. development and better standards of living.functioning large businesses that serve as sources of input and / or output in the market. Several studies have shown that differences in entrepreneurial activity are explained by one third to one half of the difference in national economic growth rates.

Economic growth is influenced by two different mechanisms: one that generated the already established company and one that generates entrepreneurship. . Entrepreneurial settings. Terms national conditions. activities and aspirations represent dynamic components of entrepreneurships. and incentives aimed at developing a framework for entrepreneurship growth of established companies and / or development of entrepreneurships. which in both cases a positive effect on national economic growth.Figure 1. The views and perceptions can have a significant impact on the supply and demand for entrepreneurships. Entrepreneurship and national economic growth Figure 1 shows the role of entrepreneurship in achieving national economic growth. Social. incentives for growth efficiency. political and cultural context play an important role in creating conditions for national economic growth.

3. Entrepreneurial activity in B&H and the region Private sector development and entrepreneurship is important for stimulating economic growth. and the lowest in Slovenia (32. the sector of SMEs makes 46. the sector of SMEs makes the largest part of the national income in Slovenia (56. From Figure 3 it can be concluded that the sector of small and medium-sized enterprises employ the most workers in Croatia (65% of total employment). According to available data on the development of SMEs in B&H and selected countries in the region (Figure 2).2%). In Serbia.5%) and Croatia (56%). while in Bosnia and Herzegovina 36%. particularly in developing countries and transition economies. .6% of GDP.

Serbia on 90th place. it is evident that Croatia's top ranking with respect to the easy operations.1 8. 2012 Slovenia Serbia Croatia B&H Ease of doing business ranking The time required to start a business (days) 58 90 10 119 6 13 22 60 The cost of opening a business (% of personal income per capita) 0 7. In Figure 4 was compared to the total number of micro. in 2012 they are ranked on the 10th place out of 183 countries. Given these factors. According to available data. Slovenia is on the 58th place. including the time required to open a new business. The situation is the worst in Bosnia and Herzegovina.8% of personal income (Table 1).Table 1 contains information about the World Bank's ease of use and operating conditions in B&H and selected countries in the region. and the cost of such activities makes 15. Slovenia. Croatia and Slovenia are very similar. and in this case.8 Source: Central Bank. as well as the cost of these activities. small and medium enterprises in the four selected countries: Croatia. in Slovenia the number of listed companies is 93 392 and in Croatia 94.4 15. Slovenia is a country where the cost of starting a new company is the lowest (0% personal income) and they have the shortest period of time (6 days). where it takes 60 days to start a new business. Specifically. . Table 1: Terms and conditions of doing business. and Bosnia and Herzegovina is ranked on the 119th place. Serbia and Bosnia and Herzegovina.088. 2012 The motivation for starting entrepreneurial activity depends on many factors. As with the previous results of the analyzed data.

small and medium enterprises per 1. .2%.8% micro. and last in Serbia with only 9.000 inhabitants.8% micro. Bosnia and Herzegovina with 18.As far as the average number of micro.2%. Slovenia leads with 46. small and medium enterprises per 1. Croatia follows with 21. small and medium enterprises per 1.000 inhabitants.000 populations in the same period (Figure 5).

to detect significant differences among the member countries.8. which indicates the number of entrepreneurially active people who want to start or have started work on the 100 surveyed populations. aged 18-64 years. The lowest index is in Slovenia. the best situation in B&H. according to Euro-stat data for 2012. while the other observed countries: Serbia. They analyzed the EU Member States 27. the number or density of micro enterprises per 1. Regarding the Total Entrepreneurial Activity (TEA). Thus.5. . Figure 7 shows the comparative analysis of entrepreneurial activities. attitudes about entrepreneurship and indices of total entrepreneurial activity of four selected countries in the region. and in Slovakia 4.When we compare the above data with the averages for the EU-27 (Figure 6).000 inhabitants in the Czech Republic was 81. it is seen that Slovenia is above the EU-27 average. Bosnia and Croatia are under the average EU-27. and Croatia and Serbia are equal.

Large budget expenditures must be financed by high taxes . great attention in the literature reference is given to the level of security of property rights. social welfare.4. etc. the basic function of government is to protect property and contract rights . Analyzing the issue of economic freedom . If economic activity in a sector is mostly nationalized . which in turn limit entrepreneurial activity . whether it be on the economic . civil or political . Economic freedom . it can be said that the quality of regulatory systems and efficient judiciary affect . exchange or transfer their property to others as long as there are no problems when their assets were acquired without the use of force . Good institutions are an important determinant and a prerequisite for economic growth and development . it reduce the incentives for enterprises considering that some minimums need to be guaranteed. opportunities for entrepreneurship are reduced . Individuals have economic freedom when they are free to use . Given the above . fraud or threats protected from physical attacks of others. entrepreneurial activity and economic prosperity Freedom . . if the state offers a high level of public services of education . In an economically free society. Also . is what economists refer to as institutions in the economy.

which consists of indicators of independence and impartiality of the judiciary .indexes that measure the freedom of government regulation and control of the labor market . In a sample of 29 countries it is showed that the size of government and the quality of monetary policy are important determinants of entrepreneurships3 . Entrepreneurial activity can not be considered without private property . so no businesses outside the free market . but the structure of incentives offered by the institution . However . (2 ) the legislative framework .indices of economic freedom: 2 ( 1 ) size of government . and the integrity of the legal system . The explosion of economic initiatives in countries such as China . (3 ) the rate of the variability of the inflation. The most important is to ensure the right of ownership and effective legislation . 2 3 .the overall entrepreneurial activity . while it can be said to predict the future relative prices have a significant role in decision-making in the economy and it is debatable whether the stated have impact on entrepreneurial activity . which is composed of three sub . while transfers and subsidies and the level of taxation are negatively associated with entrepreneurship of opportunities . which measures the extent to which the state intervenes in the economy through government spending . which measures the extent of trade and trade and capital flow bariers. protection of intellectual property rights . market rules and consumer's choice . There are five sub. public investment and taxation . Another frequently cited measure of economic freedom is the variability of inflation. financial markets and control prices in the market for goods and services . given that entrepreneurs are generally speculators . redistribution transfers. the involvement of the military in law and policy . and ( 5 ) the quality of the regulatory system . Latin America and Central Europe attests to the fact that the affirmation of private initiative does not depend on the cultural model . but the actual trade and investment flows . (4 ) international trade . The share of government consumption in total consumption affects entrepreneurship out of necessity .

human capital is underused. and ( 6 ) freedom of citizens to enter the capital transactions with foreigners. good regulation and security of property rights is what encourages entrepreneurial activity which is crucial for the achievement of economic growth. and institutional quality standards in terms of economic freedom . along with a market-oriented environment. the necessary state and institutional reforms for sustainable growth with that of the institutional reforms . ( 2 ) the role of small state-owned enterprises . have higher rates of economic growth than less free countries. There are three key things for the continuous preservation of peace: 5 international institutions. The government should aim to achieve a high degree of political and economic stability. market coordination of resources and freely traded. 6 Or. And less free countries benefit from more free countries. 137140 . ensuring property rights. Available developed countries provide a model source technology and the market for the products. The quality of institutions can explain differences in 4 5 6 James D. which are significantly correlated with productivity factors and capital accumulation: 4 ( 1 ) a low rate of growth of money . Microeconomics: Private and Public Choice. Russell S. democratic governance and international trade. ( 4 ) a small difference between official and "black" exchange rate . Economic freedom is essential for the preservation of peace. countries with low levels of economic freedom are 14 times more prone to armed conflict than those with high levels of economic freedom . It is 50 times more effective than democracy in reducing conflict and econometric studies have shown that the impact of economic freedom on whether states have a highly significant military conflicts . Healthy institutions are crucial in encouraging economic freedom which is necessary for economic growth. 2012. Stroup. low taxes.Economic freedom promotes growth through the growth of total factors of productivity and by encouraging capital accumulation. ( 5 ) huge trade sectors . Macpherson. Numerous analyzes have shown that in countries in transition. The growth of economic freedom should be a key priority for policy makers. As long as enough institutions or public capital. David A. It is possible to identify six elements of the economic freedom . Sobel. in other words. Economically freer country or countries in which there is no rule of law. And Kreft and Sobel show that the level of economic freedom in an area significantly affects the level of entrepreneurial activity in the area. P. Publisher: Cengage Learning. ( 3 ) rare negative real interest rates . Gwartney. Richard L.

countries with lower levels of economic freedom have lower rates of formation of new businesses because the benefits of private entrepreneurial activity decreased relative to other forms of economic and political activities. Economic theory suggests that private property. 7 John L. Newly established companies increase competitive pressure on existing companies and forcing them to increase their efficiency. J. From a statistical point of view. separation of enterprises. Governance of the American Economy (Structural Analysis in the Social Sciences). This indicator does not include mergers. economic freedom is positively and significantly correlated with net business formation measured as the net change in the number of companies as a percentage of the total number of enterprises in the country. etc. 63-68 . acquisitions. Campbell and Rogers show that a greater degree of economic freedom results in higher levels of income for residents such as freedom increases the opportunities for entrepreneurial activity.7 Thus. low taxes and freedom of trade contribute to economic prosperity. p. a stable monetary environment. Rogers Hollingsworth. The number of start-ups is considered to be a key determinant of economic growth and competitiveness of modern economies. In this way they stimulate innovation and encourage the adoption of new technologies and thereby affect aggregate productivity growth in the economy. 1991. so-called "Birth" companies or startups are considered by creating a combination of production factors with the restriction involving any other company. Publisher: Cambridge University Press.entrepreneurial activity between countries. Campbell. Thus. Leon N. Lindberg.

where it takes 60 days to start a new business.5 %) and Croatia (56 %). Serbia and Slovenia) has shown that entrepreneurships make the biggest part of the national income in Slovenia (56.000 inhabitants in the same period the leader is Slovenia. The motivation for starting entrepreneurial activity depends on many factors. economic freedom promotes growth through the growth of total factors of productivity and by encouraging capital accumulation.5. On the other hand. The situation is worst in Bosnia and Herzegovina. including the time required to open a new business. CONCLUSIONS In this paper the analysis and review of the results of benchmark research is related to the level of development of entrepreneurship and the importance of entrepreneurship for the overall economy and to investigate the link between the level of economic freedom with economic prosperity and entrepreneurial activities. It is shown how the economically most successful countries with welldeveloped enterprise. Slovenia is a country where the cost of starting a new company is the lowest (0% personal income) and the shortest period of time (6 days). followed by Croatia and Bosnia and the last in Serbia. When we compare these indicators with . since the enterprises are a generator of economic growth. the sector of SMEs makes 46. and the cost of such activities makes 15. Also. one of the prerequisites for the development of successful entrepreneurial economy is the high level of economic freedom. Given these factors.8 % of personal income. as well as the cost of these activities. Economic growth is influenced by two different mechanisms: one that generated already established company and one that generates entrepreneurships. Studies have shown that the level of economic freedom significantly affect the level of entrepreneurial activity. In Serbia. According to the average number of micro. Entrepreneurs are innovators and are a source of economic change. small and medium enterprises per 1. Comparative analysis of B&H and selected countries (Croatia.6 % of GDP. while in Bosnia and Herzegovina 36 %.

it can be noted that the space for the development of entrepreneurship and entrepreneurial activity in B&H still has and should continue to encourage the development of enterprise economic policy measures. Bolivia. it is seen that Slovenia is above the EU-27 average. and the lowest in Slovenia of the surveyed countries. while the other observed countries: Serbia. while the economically freest countries are Ireland. Bosnia and Croatia are under the average EU-27. According to figures from the total entrepreneurial activity (TEA) and the index of economic freedom in countries included in GEM’s report for 2012. The largest TEA index is in countries like Angola. and Chile. Great Britain.S. Analysis of incentives and policies need to be applied in order to enable and accelerate the development of entrepreneurship as a generator of economic growth in B&H and the region will be the subject of future broader researches. The index of entrepreneurial activity is the highest in B&H . In conclusion. Denmark.averages for the EU.27. it is evident that it is not necessary that countries with a high index of economic freedom have high TEA index among the selected countries. the construction and improvement of the legislative framework and institutions to encourage entrepreneurial activity. It is possible and necessary to use the best practices of successful countries in fostering entrepreneurships. Serbia and Croatia are equal according to this indicator. Colombia. . The state has developed a system of incentives and institutional support to entrepreneurs in the form of various agencies that provide assistance. the U. Peru and the Dominican Republic..