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Econ 221 Chapter 2. The Role of Entrepreneurship in Economic Development
Econ 221 Chapter 2. The Role of Entrepreneurship in Economic Development
Introduction
B – Desired Learning Outcomes (DLOs)
Addressing widespread poverty is the single most important policy
challenge facing the Philippines. Not only is poverty high when benchmarked
At the end of the unit, the students must have:
against countries in Asia, but also the rate of poverty reduction has been slow.
While the Philippine economy has grown at an average of 6 percent for the last 1. Explained the significant contributions of entrepreneurs in the
five consecutive quarters since 2019 (World Bank), poverty incidence of 16.6% economic development.
(PSA, 2019) remains a problem among Filipino population, or the proportion of 2. Discussed the different economic and growth theories that
poor Filipinos whose per capita income is not sufficient to meet their basic food
contributes entrepreneurship development in the Philippines
and non-food needs. The critical challenge is to spread the payback of this huge
economic turnaround among the people, especially the poorest of the poor. They C. Topics
should feel the benefits of the growing Philippine economy.
Entrepreneurship can provide the solution by creating wealth, jobs, and 1. Entrepreneurship Defined
social empowerment. If we are to address the issue of poverty with some degree 2. Role of Entrepreneurship Economic Growth and Development
of success, history tells us we have no choice but to actively encourage 3. Development and Growth Theories
entrepreneurial ventures. 4. The Importance of Entrepreneurship
5. Contributions of Entrepreneurs
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D – Content Focus The Philippine Development Plan (PDP) further reinforces the thrust on
entrepreneurship through trade and investment to achieve the government’s goal
of economic development and job creation. Based on the plan, measures for
macro-economic stability, employment, trade and investment, agribusiness,
power-sector reforms, infrastructure, competition, science and technology, and
anti-corruption are being pursued to strengthen Philippines’s competitiveness and
contribute to job creation.
Access to credit
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The rapid integration of economies and globalization of markets has i. product complementarity
influenced the evolution of entrepreneurship over the years. Thus, from the
Role of enterprise networks
traditional concept of supporting the various factors of production,
entrepreneurship now entails the capacity to see an opportunity, come up with an In addressing the above mentioned challenges, there is a need to rally
idea, and organize the capital, knowledge, partners and managerial skill needed to behind national advocacy to push entrepreneurship to the next level. This means
develop and sustain business activities through internationalized value chains. nurturing micro-entrepreneurs from purely “survival” into “opportunity and
innovation driven” enterprise owners. This puts a premium on the role of
Taking advantage of liberalized trading environments is an emerging
enterprise organizations such as chambers of commerce, industry associations,
challenge for Philippine enterprises. This is compounded by the reality of limited
and dedicated enterprise networks.
opportunities for productivity and innovation.
The OECD Working Party on SMEs and Entrepreneurship in its 2009
According to The World Economic Forum (WEF) Global
study on “Barriers and Drivers to SMEs Internationalization” undertaken by
Competitiveness Index identified key areas in business and enterprise
Kocker and Buhl points out that institutionalization of networks/social ties and
development where the Philippines is lagging, such as;
supply chains is a key driver of SME international competitiveness. The study
a. Infrastructure noted “the importance of network/social ties and supply chain links in triggering
b. labor market efficiency an SME’s first internationalization step and extending internationalization
c. innovation processes.”
d. technological readiness
In the Philippines, apart from institutions like chambers of commerce and
e. intellectual property protection
industry clubs, entrepreneurship advocacy is mainstreamed by the creation of
f. R&D spending by private companies
enterprise networks like the Philippine Center for Entrepreneurship (PCE).
g. availability of scientists
PCE’s concrete goal is to spawn the creation of so-called “Go Negosyo
Enterprises need to be supported by strong social and physical Communities” everywhere. These are communities where the academic, business
infrastructure which include among others in the supply chain and economic and government sectors are drawn into a triangle of almost seamless
clusters collaboration. In such an ecosystem, there is constant networking, mentoring and
cooperation among professors, entrepreneurs, industry experts and venture
a. labor
capitalists, with the government providing support through a viable policy
b. productivity
infrastructure. Every “Go Negosyo” community is distinguished by its ability to
c. laboratories
produce a continuous stream of start-up ventures.
d. business incubators
e. business planning PCE also seeks to embed strong entrepreneurship lessons into the school
f. marketing and branding curriculum. If the goal is to develop a culture of enterprise and cultivate
g. conformance to international standards tomorrow’s competitive entrepreneurs, they must start at a young age. Primary
h. product specialization and secondary schools can teach the values and develop the mindsets of an
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entrepreneur. At the college level, enterprise networks are looking at how to assist David Ricardo, in his theory of economic development who wrote
in the area of curriculum enhancement, providing manuals, training the teachers, “Principles of Political Economy and Taxation” identified only three factors of
and involving real entrepreneurs in the learning process. production, namely, machinery, capital and labor, among whom the entire
produce is distributed as rent, profit and wages respectively. Ricardo appreciated
the virtues of profit in capital accumulation. According to him, profit leads to
Roles of Entrepreneurship in the Economic Growth and Development saving of wealth that ultimately goes to capital formation.
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The Dismal Science: Marx and Malthus Speaking in Numbers
Karl Marx and Thomas Malthus had decidedly poor reactions to Smith's Walras went on to mathematize his theory of marginal analysis and made
treatise. Malthus predicted that growing populations would outstrip the food models and theories that reflected what he found there. General equilibrium
supply. He was proven wrong, however, as he did not foresee technological theory came from his work, as did the tendency to express economic concepts
innovations that would allow production to keep pace with a growing population. statistically and mathematically instead of just in prose. Alfred Marshall took the
Nonetheless, his work shifted the focus of economics to the scarcity of things, mathematical modeling of economies to new heights, introducing many concepts
rather than the demand for them. that are still not fully understood, such as economies of scale, marginal utility,
and the real-cost paradigm.
This increased focus on scarcity led Karl Marx to declare the means of
production were the most important components in any economy. Marx took his Keynes and Macroeconomics
ideas further and became convinced a class war was going to be initiated by the
inherent instabilities he saw in capitalism. However, Marx underestimated the John Maynard Keynes developed a new branch of economics known as
flexibility of capitalism. Instead of creating a clear owner and worker class, Keynesian economics, or more generally as macroeconomics. Keynes styled the
investing created a mixed class where owners and workers hold the interests of economists who had come before him as "classical" economists, and he believed
both parties. Despite his overly rigid theory, Marx did accurately predicted one that while their theories might apply to individual choices and goods markets, they
trend: businesses grew larger and more powerful, to the degree that free-market did not adequately describe the operation of the economy as a whole. Instead of
capitalism allowed. marginal units or even specific goods markets and prices, Keynesian
macroeconomics presents the economy in terms of large-scale aggregates that
The Marginal Revolution represent the rate of unemployment, aggregate demand, or average price level
inflation for all goods.
As the ideas of wealth and scarcity developed in economics, economists
turned their attention to asking more specific questions about how markets operate Keynes's theory says that governments can be powerful players in the
and how market prices are determined. English economist William Stanley economy and save it from recession by implementing expansionary fiscal and
Jevons, Austrian economist Carl Menger, and French economist Leon Walras monetary policy—manipulating government spending, taxing, and money creation
independently developed a new perspective in economics known as marginalism. —in order to manage the economy.
Their key insight was that in practice, people are not actually faced with
big picture decisions over entire general classes of economic goods. Instead, they
make their decisions around specific units of an economic good as they choose to The Neoclassical Synthesis
buy, sell, or produce each additional (or marginal) unit. In doing so, people Viewed markets as inherently prone to calamitous failure that threatens
balance the scarcity of each good against the value of the use of the good at the society, this has led to persistent academic and public policy disagreements, with
margin. These decisions explain, for example, why the price of an individual various theories ascendant at different times.
diamond is relatively higher than the price of an individual unit of water.
Marginalism quickly became, and remains, a central concept in economics.
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Several different streams of economic theory and research have tried to developed and backward areas. The growth of industries and business in
resolve the tension between micro- and macroeconomics by incorporating aspects these areas lead to a large number of public benefits like road transport,
or assumptions from microeconomics (such as rational expectations) into health, education, entertainment, etc. Setting up of more industries lead
macroeconomics or by further developing microeconomics in order to provide to more development of backward regions and thereby promotes
micro-foundations (such as price-stickiness or psychological factors) for balanced regional development.
Keynesian macroeconomics.
4. Reduces Concentration of Economic Power: Economic power is the
In recent decades, this has led to the development of new theories, such
natural outcome of industrial and business activity. Industrial
as behavioral economics, and to renewed interest in heterodox theories previously
development normally lead to concentration of economic power in the
relegated to the economic backwaters, such as Austrian economics.
hands of a few individuals which results in the growth of monopolies. In
The important role that entrepreneurship plays in the economic development order to redress this problem a large number of entrepreneurs need to be
of an economy can now be put in a more systematic and orderly manner as developed, which will help reduce the concentration of economic power
follows: amongst the population.
1. Promotes Capital Formation: Entrepreneurs promote capital formation 5. Wealth Creation and Distribution: It stimulates equitable
by mobilizing the idle savings of public. They employ their own as well redistribution of wealth and income in the interest of the country to more
as borrowed resources for setting up their enterprises. Such type of people and geographic areas, thus giving benefit to larger sections of the
entrepreneurial activities lead to value addition and creation of wealth, society. Entrepreneurial activities also generate more activities and give a
which is very essential for the industrial and economic development of multiplier effect in the economy.
the country.
6. Increasing Gross National Product and Per Capita Income:
2. Creates Large-Scale Employment Opportunities: Entrepreneurs Entrepreneurs are always on the lookout for opportunities. They explore
provide immediate large-scale employment to the unemployed which is a and exploit opportunities, encourage effective resource mobilization of
chronic problem of underdeveloped nations. With the setting up of more capital and skill, bring in new products and services and develops
and more units by entrepreneurs, both on small and largescale numerous markets for growth of the economy. In this way, they help increasing
job opportunities are created for others. gross national product as well as per capita income of the people in a
country. Increase in gross national product and per capita income of the
As time passes, these enterprises grow, providing direct and indirect people in a country, lead to an economic growth.
employment opportunities to many more. In this way, entrepreneurs play
an effective role in reducing the problem of unemployment in the country 7. Improvement in the Standard of Living: Increase in the standard of
that in turn clears the path towards economic development of the nation. living of the people is a characteristic feature of economic development
3. Promotes Balanced Regional Development: Entrepreneurs help to of the country. Entrepreneurs play a key role in increasing the standard of
remove regional disparities through setting up of industries in less living of the people by adopting latest innovations in the production of
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wide variety of goods and services in large scale that too at a lower cost. services. An entrepreneur brings economic development through
This enables the people to avail better quality goods at lower prices, innovation.
which results in the improvement of their standard of living.
12. Entrepreneurs Create New Businesses: Path breaking offerings by
8. Promotes Country's Export Trade: Entrepreneurs help in promoting a entrepreneurs, in the form of new goods & services, result in new
country's export-trade, which is an important ingredient of economic employment, which can produce a cascading effect or virtuous circle in
development. They produce goods and services in large scale for the the economy. The stimulation of related businesses or sectors that
purpose earning huge amount of foreign exchange from export in order support the new venture add to further economic development.
to combat the import dues requirement. Hence, import substitution and
export promotion ensure economic independence and development. 13. Entrepreneurs Also Create Social Change: Through their unique
offerings of new goods and services, entrepreneurs break away from
9. Induces Backward and Forward Linkages: Entrepreneurs like to work tradition and indirectly support freedom by reducing dependence on
in an environment of change and try to maximize profits by innovation. obsolete systems and technologies. Overall, this results in an improved
When an enterprise is established in accordance with the changing quality of life, greater morale and economic freedom.
technology, it induces backward and forward linkages, which stimulate
the process of economic development in the country. For example:
10. Facilitates Overall Development: Entrepreneurs act as catalytic agent a.) the water supply in a water scarce region will, at times, force people
for change which results in chain reaction. Once an enterprise is to stop working to collect water. This will affect their business,
established, the process of industrialization is set in motion. This unit productivity and income. Imagine an innovative, automatic, low-cost,
will generate demand for various types of units required by it and there flow-based pump that can fill in people's home water containers
will be so many other units, which require the output of this unit. This automatically. Such an installation will ensure people are able to focus on
leads to overall development of an area due to increase in demand and their core jobs without worrying about a necessity like carrying water.
setting up of more and more units. In this way, the entrepreneurs multiply More time to devote to work means economic growth.
their entrepreneurial activities, thus creating an environment of
enthusiasm and conveying an impetus for overall development of the b.) smart phones and their smart apps have revolutionized work and play
area. across the globe. Smart phones are not exclusive to rich countries or rich
people either. As the growth of China's smart phone market and its
11. Creating innovation: An entrepreneur is a person who always look for smartphone industry show, technological entrepreneurship will have
changes apart from combining the factors of production; he also profound, long lasting impacts on the entire human race. Moreover, the
introduces new ideas and new combination of factors. He always try to globalization of technology means entrepreneurs in lesser-developed
introduce newer and newer technique of production of goods and countries have access to the same tools as their counterparts in richer
countries. They also have the advantage of a lower cost of living, so a
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young individual entrepreneur from an underdeveloped country can take
on the might of the multi-million dollar existing product from a
developed country.
E – Self-Check/Assessment
14. Personal Growth: Entrepreneurship has created millions of good jobs.
In a startup workplace, jobs often call for creativity and collaboration, Instructions: Fill the blank the letter of your answer before the number.
leading to personal development. Those exposed to entrepreneurship
have higher confidence and greater independence. Not bound by the ________1. A left – alone policy with respect to the business as a neutral
hierarchy and restrictions of large corporations, young entrepreneurs can consequence of the principle of competition which is underlying assumption of
take on greater responsibility, work flexible schedules and use creative the invisible hands
solutions to problem solve. a. Costs
b. Economics
The freedom associated with entrepreneurship comes with certain c. Laissez Faire
challenges. Entrepreneurs often work long hours and risk their personal d. Freedom
assets in developing their business. e. Invisible Hand Theory
________2. A division of economics that presents the economy in terms of large-
15. Entrepreneurship puts new business ideas into practice: In doing so, scale aggregates that represent the rate of unemployment, aggregate demand, or
it creates jobs that facilitate personal development. With their innovative average price level inflation for all goods.
and disruptive ideas, entrepreneurs can tackle social problems too. It’s a a. Keynesian macroeconomics
worthy pursuit to consider, but if it’s not for you, see how to pass down b. Aggregate Economics
its principles to the next generation and enroll in ‘How to Encourage and c. Macroeconomics
Teach Our Children.’ Thus, it is clear that entrepreneurship serves as a d. Normative or Positive Economics
catalyst of economic development. On the whole, the role of e. A, B and C
entrepreneurship in economic development of a country can best be put
as “an economy is the effect for which entrepreneurship is the ________3. Which is NOT the correct definition of Entrepreneurship?
cause.”
a. Creates jobs, incomes, goods and services
b. create wealth and distribution
c. Improve standard of living and create social change
d. Improve ability in spending and luxurious living
e. the capacity for innovation, investment and expansion in new markets,
product and techniques
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________4. According to him, competition was self-regulating and governments b. Capital formation
should take no part in business through tariffs, taxes, or other means c. Large Scale Employment Opportunities
unless it was to protect free market competition. d. Creating innovation
a. Adam Smith e. Facilitates overall development
b. Thomas Robert Malthus
______8. Adopting the latest innovations in the production of wide variety of
c. John Maynard Keynes
goods and services in large scale that too at a lower cost enables the people to
d. Karl Marx
avail better quality goods at lower prices, which results in the improvement of
e. David Ricardo
their standard of living.
_______5. He predicted that growing populations would outstrip the food supply,
a. Capital formation
but was proven wrong because technological innovations like using machineries
b. Promotes Country's Export Trade
increase production to cope with a growing population.
c. Entrepreneurs Also Create Social Change
a. Adam Smith
d. Entrepreneurship puts new business ideas into practice
b. Thomas Robert Malthus
e. Improvement in the Standard of Living
c. John Maynard Keynes
d. Karl Marx _____9. An ‘invisible hand’ mentioned by Adam Smith refers to?
e. David Ricardo
a. Theory
_______6. The creation of “Go Negosyo” ecosystem by the Philippine Center for b. Price
Entrepreneurship (PCE) is to have constant networking, mentoring and c. Demand
cooperation among professors, entrepreneurs, industry experts and venture d. Market
capitalists, with the government providing support through a viable policy e. Government
infrastructure. This kind of community will have the ability to…
_____10. He wrote this book entitled, “Principles of Political Economy and
a. to produce reserve military trainees against terrorist
Taxation” which identified only three factors of production, namely, machinery,
b. to produce a continuous stream of start-up ventures
capital and labor, among whom the entire produce is distributed as rent, profit and
c. to produce well-rounded and skilled workers for abroad
wages respectively.
d. to produce products and services for exports purposes
e. None of the above choices has correct answer a. Karl Marx
b. David Ricardo
_______7. Which among of the key roles of an entrepreneurship in the economic
c. Thomas Malthus
development of an economy aimed to promote capital formation by mobilizing the
d. Alfred Marshall
idle savings of public.
e. John Maynard Keynes
a. Personal Growth
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__________________________________________________________________
F – Self-Reflect __________________________________________________________________
1. Select two (2) important role that entrepreneurship plays in the economic __________________________________________________________________
development of an economy. Explain and give an example each. (20
__________________________________________________________________
points)
A. __________________________________________________________ __________________________________________________________________
__________________________________________________________________ __________________________________________________________________
__________________________________________________________________ __________________________________________________________________
__________________________________________________________________ Rubrics for Essay Question
__________________________________________________________________
Criteria for Written Exercises (As Agreed by the whole class)
__________________________________________________________________
Content (Correctness and Appropriateness of Ideas Presented) – 10 point
__________________________________________________________________ Convention (Linguistic Appropriateness – Grammar, Phonology, Semantics)
– 5 point
__________________________________________________________________
Quality (Neatness, refinement and skillfulness) – 5 points
__________________________________________________________________
Total = 10 points
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
B. __________________________________________________________
References:
__________________________________________________________________
Amrita Dhaliwal. 2016. Role of Entrepreneurship In Economic Development.
__________________________________________________________________ Research Scholar at Punjabi University (UGC AND JRF Qualified)
House number994,Phase3B2 Mohali (Punjab) Pin number:-160060
__________________________________________________________________ Email id :- amrita.dhaliwal11@yahoo.com International Journal of
scientific research and management (IJSRM) ||Volume||4||Issue||06||
__________________________________________________________________
Pages||4262-4269||2016|| Website: www.ijsrm.in ISSN (e): 2321-3418
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Barkley, Andrew and Paul W. Barkley, 2013. Principles of Agricultural
Economics. Routledge, Taylor and FRancus Group, London and New
York. ISBN: 978-0-415-54069-8
Beattie, Andrew. 2020. History of Economics. Investopedia.
https://www.investopedia.com/articles/economics/08/economic-
thought.asp#:~:text=Economic%20thought%20goes%20as%20far,shared
%20his%20hatred%20of%20mercantilism.
Evangelista Patrick. 2013. Entrepreneurship in the Philippines: Opportunities
and Challenges for Inclusive Growth. Asia and the Pacific Article.
https://www.cipe.org/resources/entrepreneurship-philippines-
opportunities-challenges-inclusive-growth/
Fajardo, Feliciano. 2008, Third Edition. Entrepreneurship. Philippine Copyright
(1994). Reprinted and Published by National Bookstore.
Prepared by:
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