BSC IN MANAGEMENT WITH ENTREPRENEURSHIP

MN 2615
FUNDAMENTALS OF ENTREPRENEURSHIP

Topic 1- Session 2

Dr. DHRUBA LAHIRI

SPRING 2024

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 How is
Entrepreneurship good
for Economic
development?

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Estimates of the long term development of self employment rates
France Sweden US Germany The UK
Netherlands

1800 60.0

1850 22.6

1880 42.2 36.9 38.2

1890 33.8 34.6

1900 35.7 30.8 26.4

1910 26.2 34.8 25.1 13

1920 37.8 23.5 33.5

1930 20.3 32.9 20.8 12

1940 19.5 29.3

1950 19.8 16.5 28.5 19.3 7

1960 30.1 13.0 22.6 15.8 8

1970 20.8 10.7 9.5 16.5

Adapted from Wennekers et al, 2010

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Nascent Entrepreneurship Vs per Capita Income (PPP)

Source: Acs et al, 2008

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Global Competitiveness Index Framework

GCR 2017-18

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Stages Entrepreneurship

Factor Driven • High rates of non-agricultural self-

employment.
• low cost efficiencies • Sole proprietorship account for most
• low value add manufacturing firms.
• Create limited knowledge for innovation.
• Limited use of knowledge for exporting.
Efficiency Driven • Marked by decreasing rate of self-employment

• Efficient productive practices on large markets • Individuals have different endowments of

• Appropriately educated workforce managerial ability.
• Able to exploit economies of scale
• As an economy becomes wealthier, the
average size of the firm also increases as better
managers run the companies.

• Average size of a firm is an increasing function

of the wealth of an economy if capital and
labour substitute.

• When capital and labour are substitutes an

increase in capital stock increases returns from
working and lowers returns from managing

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Efficiency Driven

Other simpler explanations why entrepreneurial activity may decline as economies develop

• Improvement in infrastructure ( transportation, telecommunication and credit markets)

increase advantage of larger firms over smaller firms.

• Make it cheaper to distribute goods and services over larger areas

• Assuming scale economies up to a point, better distribution systems enables firms to

operate larger production units that can serve larger markets

• Marginal managers find they can earn more money when employed by somebody else.

• Increases in capital stock (private enterprise, FDI, government ownership) will increase
returns to wage work relative to entrepreneurial activity.

• The relationship between entrepreneurial activity and economic development will be

negative

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Stages
Innovation Driven
• Decrease in the share of manufacturing
• Service firms are smaller on average than
manufacturing firms- average firm size may
decline.
• Technological change is biased towards
entrepreneurial activities
• High value of elasticity of factor substitution
MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP
Entrepreneurship
• Decline in entrepreneurial activity stopped in
mid 1970’s
• Increase in entrepreneurial activity since mid
1970’s
• Service firms provide more opportunity for
entrepreneurship.
• Improvement in information technologies (ICT)
may increase returns to entrepreneurship
• Easier for an individual to become an
entrepreneur if the aggregate elasticity of
substitution is negative
9
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 High Stages of
Diversification

Resource dependent stage

Specialisation too early
low diversity = low innovation
specialised diversity
GINI = Specialised innovation

co-efficient
Specialisation stage
of specialised diversity
economic Random growth stage
= Specialised innovation
high diversity = high innovation
diversity

income mid point

Leading to increased specialisation
Low
Low 8800 High
GDP Per Capita Source: Ibs & Wacziarg, 2003

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Global Entrepreneurship Monitor (GEM) Program

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Total early-stage entrepreneurial activity – TEA
The percentage of the adult population aged 18–64 years who are in the process of starting a
business (a nascent entrepreneur) or started a business less than 42 months old before the
survey took place (owner-manager of a new business). This indicator can be enriched by
providing information related to motivation (opportunity vs. necessity), inclusiveness (gender,
age), impact (business growth in terms of expected job creation, innovation, and industry
sectors
Established business ownership rate
The percentage of the adult population aged 18–64 years who are currently an owner-
manager of an established business, i.e. owning and managing a running business that
has paid salaries, wages, or any other payments to the owners for more than 42 months

Business discontinuation rate

The percentage of the adult population aged 18–64 years that have discontinued a
business in the past twelve months, either by selling, shutting down, or otherwise
discontinuing an owner/management relationship with the business

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Entrepreneurial employee activity – EEA
The percentage of the adult population aged 18–64 years who, as employees, have been
involved in entrepreneurial activities such as developing or launching new goods or
services, or setting up a new business unit, a new establishment, or a subsidiary

Social entrepreneurial activity – SEA

The percentage of the adult population aged 18–64 years who are engaged in early-
stage entrepreneurial activities with a social goal

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Shortcomings of the GEM Program
• Not able to effectively deal with ‘issues’ of how to compare entrepreneurial activities in
developed and developing countries

• Data on Opportunity – Necessity entrepreneurs show higher levels in Developing

countries than developed countries – possibly biased response

• The relationship between necessity entrepreneurship & economic development

should be negative in developing countries

• The relationship between entrepreneurship and economic development should be

positive in developed countries

• The U-shaped approach is useful in understanding the decline in self-employment in

developing countries both across countries and time, but less useful in explaining
entrepreneurship

• the U-shaped framework is not very useful in explaining entrepreneurship in efficiency

driven economies – limited use even for OECD countries

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Change of approach

SBO EO

Necessity Opportunity

Economic Growth

where K represents the factor of physical capital, L represents labor, R represents knowledge capital, and E represents
entrepreneurship capital. The subscript i refers to countries.

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Opportunity-Necessity Entrepreneurship ratio Vs Income per
capita

Source: Acs et al, 2008

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 Acs et al (2008)

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 Acs and Szerb (2008)

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 Any question?

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