MN2615 T2 Session 1 - Understanding Growth

BSC IN MANAGEMENT WITH ENTRPRENEURSHIP
MN 2615
FUNDAMENTALS OF ENTREPRENEURSHIP
Block 2 – Session 1- PART 1
Understanding Business
Growth
Dr. DHRUBA LAHIRI

SPRING 2024
MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 1

Contents
Understanding national economic
growth/competitiveness
Ways to grow the economy BLOCK 2- SESSION 1

(Part 1 & 2)
Policy making – ecosystem design
Why technology
Theories of small firm growth BLOCK 2- SESSION 2

UNDERSTANDING
THE MEANING
OF
ECONOMIC
DEVELOPMENT

Development economics is different from
Traditional Economics
An approach to economics that emphasises utility, profit maximisation,
market efficiency and determination of equilibrium
Political Economics
The attempt to merge economic analysis with practical politics – to view
economic activity in its political context.
Inclusive Vs Extractive systems - Acemoglu & Robinson, 2012
It is defined as
The study of how economies are transformed from stagnation to growth

and from low income to high income status and overcome problems of
absolute poverty.

Economic development is value dependent
Unlike traditional economics which is generally framed from a positivist

perspective and thus value-free , economic development is not. It deals with
issues of
-Economic and social equality

-Elimination of poverty
-Universal education
-Standard of living
-National independence
-Rule of law and due process
-Access to opportunity
-Political and economic participation
-Grassroots democracy
-Self-reliance
-Personal fulfillment
These are all value dependent

Values:
Principles, standards, or qualities that a society or groups within it considers
worthwhile of desirable
Attitudes:
The state of mind or feelings of an individual, group or society regarding
issues such as material gain, hard work, saving for the future and sharing
wealth.
Institutions:
Norms, rules of conduct and generally accepted ways of doing things
Economic institutions are human devised constraints.

What do we mean by development?
Traditional Economic Measures
Income per capita , Gross National Income (GNI), GDP
GNI = GDP + factor incomes accruing to residents from abroad – income

earned in the domestic economy accruing to persons abroad
GDP = C+I + G + X - IM
DEBATE: Development Vs Growth Watch Video

What do we mean by development?
Higher growth will ultimately percolate downwards – FALSE
Privatisation of basic services will provide development - FALSE
Countries actually regressed rather than progressed- TRUE
Reinert (2007) called it ‘primitivisation’
Possible solutions
‘ Redistribution from growth’ - palliative economics
‘ capability to function’ – Amartya Sen, 1998 Nobel Laureate
“ Economic growth cannot be sensibly treated as an end in itself. Development has

to be more concerned with enhancing the lives we lead and the freedoms we enjoy”

Components of Economic Growth
▪ Capital Accumulation, investments in physical and human
capital
– Increase capital stock
▪ Growth in population and labor force
▪ Technological progress
– Neutral (e.g. specialization and division of tasks)
– Labor-saving (e.g. computers; ATM)
– Labor or capital augmenting (upgrading of skills;
higher quality material)

Solow’s model
▪ Diminishing returns to scale to labor and capital, separately
▪ Constant returns to scale, jointly
• Doubling of both capital and labor inputs, doubles
output
▪ Growth comes from:
– Increases in quantities of labor and/or capital
– Improvements in technology
» Openness to foreign ideas raises the rate of
technological progress

Solow’s model
▪ Like the HD model, increased savings positively impact the capital/labor
ratio
▪ Unlike HD model, the economic growth rate will return to a steady state
(more in general: economies will converge)
▪ Economic growth will only temporarily speed up after an increase in the
savings rate
• Empirically though, economic growth seems to be higher for a
considerable period of time!
▪ Technological progress is treated as exogenous
• There may be positive externalities
Review the interactive resource
• Investment may be in higher quality technology “ Understanding Economic
Growth” in Moodle

Endogenous growth theory
▪ Growth accounting
▪ Solow’s model implies that after accounting for changes in stocks of
capital and labor, and technological change, growth rates will
converge to zero
▪ But after accounting for changes in capital and labor, a large
residual (Solow residual) remains, which is some 50% of growth
▪ Explaining this residual (top-down) has become the focus of modern
literature
▪ Porter – and competitiveness reports – in fact explains the capacity
of an economy to outperform others, bottom-up!

Endogenous growth theory
▪ Sustained long-term growth is possible
▪ Permanent increases in income gaps between poor and rich
countries
▪ High rates of return in capital-scarce countries may be eroded
by low levels of complementary investments (in human
capital; R&D)
▪ Positive capital externalities (Romer’s model)
Review the video to get an

understanding of the Romer’s
Endogenous Growth Theory

BSC IN MANAGEMENT WITH ENTRPRENEURSHIP
MN 2615
FUNDAMENTALS OF ENTREPRENEURSHIP
Topic 2 – Session 1 (PART 2)
Understanding Business
Growth
Dr. DHRUBA LAHIRI

SPRING 2022

UNDERSTANDING NATIONAL ADVANTAGE

Firm Strategy
Structure & Rivalry
Demand
Factor Conditions
Conditions
Related and
Supporting
Government Industries Chance

MEASURING THE NATIONAL ENTREPRENEURIAL
ECO-SYSTEM
GLOBAL ENTREPRENEURSHIP INDEX

(GEI)

Entrepreneurship Ecosystem Government
• Institutions ( e,g investment support ) * Financial support ( R&D, Jump start funds)
Leadership • Regulatory framework incentives ( e.g tax benefits) * Research Institutes * Venture
Early Customers friendly legislation ( eg Bankruptcy, contract enforcement , property rights and labour
•Unequivocal support laws.
•Early adopters for product •Social Legitimacy
concept • Open door for advocate Financial Capital
• Experience in product •Entrepreneurship strategy
concept •Urgency, crisis & Challenge • Micro Loan * Business Angel investors,
• Reference customers friends and family * Zero-stage venture Capital
• First reviews • Venture Capital funds * Private Equity
• Distribution channels Policy • Public capital markets * Debt
Networks Success stories

Markets Finance
• Entrepreneurs networks • Visible successes
• Diaspora networks • Wealth generation for founders
• Multinational corporations • International reputation
Entrepreneurship
Societal Norms
Labour
Human Capital Culture •Tolerance of risks, mistakes and failure
• Skilled and unskilled • Innovation, creativity & Experimentation
• Serial Entrepreneurs • Social status of entrepreneurs
• Later generation family • Wealth creation
Support • Ambition, drive hunger
Educational Institutions NGO

Infrastructure Support Professionals
•Entrepreneurship
• General degrees • Telecommunications promotion in non profit
(professional & academic) • Transportation & logistics •Legal • Business Plan contests
• Specific entrepreneurship • Energy • Accounting • Conferences
training • Investment Banking Isenberg, 2011
• Zones, Incubators, centres • Entrepreneur-friendly
& clusters • Technical experts, advisers associations

GEI INDEX PILLARS
COMPONENT OF THE WHAT DOES IT MEASURE?

ENTREPRENEURSHIP ECOSYSTEM
PILLAR 1 Can the population identify opportunities
OPPORTUNITY PERCEPTION to start a business and does the
institutional environment make it
possible to act on those opportunities?
PILLAR 2 Does the population have the skills

START-UP SKILLS necessary to start a business based on
their own perceptions and the availability
of tertiary education?
GEI INDEX REPORT, 2018

GEI INDEX PILLARS

PILLAR 3 Are individuals willing to take the risk of
RISK ACCEPTANCE starting a business? Is the environment
relatively low risk or do unstable
institutions add additional risks to
starting a business?
PILLAR 4 Do entrepreneurs know each other and

NETWORKING how geographically concentrated are
their networks?

GEI INDEX PILLARS

PILLAR 5 How does the country view
CULTURAL SUPPORT entrepreneurship? Is it easy to choose
entrepreneurship or does corruption
make entrepreneurship difficult relative
to other career paths?
PILLAR 6 Are entrepreneurs motivated by

OPPORTUNITY START-UP opportunity rather than necessity and
does governance make the choice to be
an entrepreneur easy?

GEI INDEX PILLARS

PILLAR 7 Is the technology sector large and can
TECHNOLOGY ABSORPTION businesses rapidly absorb new
technology
PILLAR 8 Are entrepreneurs highly educated, well

HUMAN CAPITAL trained in business and able to move
freely in the labour market?

GEI INDEX PILLARS

PILLAR 9 Are entrepreneurs creating unique
COMPETITION products and services and able to enter
the market with them?
PILLAR 10 Is the country able to develop new

PRODUCT INNOVATION products and integrate new technology?

GEI INDEX PILLARS

PILLAR 11 Do businesses use new technology and
PROCESS INNOVATION are they able to access high quality
human capital in STEM fields.
PILLAR 12 Do businesses intend to grow and have

HIGH GROWTH the strategic capacity to achieve this
growth?

GEI INDEX PILLARS

PILLAR 13 Do entrepreneurs want to enter global
INTERNATIONALIZATION markets and is the economy complex
enough to produce ideas that are
valuable globally?
PILLAR 14 Is capital available from both the

RISK CAPITAL individual and institutional investors.

GEI Index 2018

GEI 2018
Rankings

EMPIRICAL EVIDENCE THAT THE ECO SYSTEM MATTERS

SOLOW GROWTH ACCOUNTING
Y = θ (K) + (1- θ)[N] + A
[K= CAPITAL , N = LABOUR , A = TOTAL FACTOR PRODUCTIVITY (TFP)]
Examples
Y θ (K) (1- θ)[N] A
Country A 10% = 5 + 3 + 2
Country B 10% = 2 + 2 + 6
COUNTRY B is performing better !!

GEI vs TFP

GEI vs PRODUCTIVITY

GEI vs INNOVATION EFFECT

MN2615 T2 Session 1 - Understanding Growth

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BSC IN MANAGEMENT WITH ENTRPRENEURSHIP

Block 2 – Session 1- PART 1

Dr. DHRUBA LAHIRI

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 1

Ways to grow the economy BLOCK 2- SESSION 1

Theories of small firm growth BLOCK 2- SESSION 2

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 2

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 3

Inclusive Vs Extractive systems - Acemoglu & Robinson, 2012

The study of how economies are transformed from stagnation to growth

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 4

Unlike traditional economics which is generally framed from a positivist

-Economic and social equality

These are all value dependent

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 5

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 6

Traditional Economic Measures

Income per capita , Gross National Income (GNI), GDP

GNI = GDP + factor incomes accruing to residents from abroad – income

DEBATE: Development Vs Growth Watch Video

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 7

Privatisation of basic services will provide development - FALSE

Countries actually regressed rather than progressed- TRUE

Reinert (2007) called it ‘primitivisation’

‘ Redistribution from growth’ - palliative economics

‘ capability to function’ – Amartya Sen, 1998 Nobel Laureate

“ Economic growth cannot be sensibly treated as an end in itself. Development has

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 8

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 9

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 10

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 11

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 12

Review the video to get an

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 13

Topic 2 – Session 1 (PART 2)

Dr. DHRUBA LAHIRI

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 14

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 15

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 16

GLOBAL ENTREPRENEURSHIP INDEX

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 18

Networks Success stories

Educational Institutions NGO

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 19

COMPONENT OF THE WHAT DOES IT MEASURE?

PILLAR 2 Does the population have the skills

GEI INDEX REPORT, 2018

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 20

COMPONENT OF THE WHAT DOES IT MEASURE?

PILLAR 4 Do entrepreneurs know each other and

GEI INDEX REPORT, 2018

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 21

COMPONENT OF THE WHAT DOES IT MEASURE?

PILLAR 6 Are entrepreneurs motivated by

GEI INDEX REPORT, 2018

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 22

COMPONENT OF THE WHAT DOES IT MEASURE?

PILLAR 8 Are entrepreneurs highly educated, well

GEI INDEX REPORT, 2018

MN2615 – FUNDAMENTALS OF ENTREPRENEURSHIP 23

COMPONENT OF THE WHAT DOES IT MEASURE?

PILLAR 10 Is the country able to develop new

GEI INDEX REPORT, 2018