Economic Development and Entrepreneurship

Introduction

Entrepreneurship is playing a significant role in the economic development of many countries

since the last decade. It has not changed the whole scenario of business by contributing a major
share in the GDP of any country. But however how much it contributes in any particular
economy may differ. Considerable amount of differences can be seen in the way
entrepreneurship operates in any country (Autio 2007). Even in the way people defines the term.
But still Entrepreneurship is considered to be an important mechanism for economic
development through employment, innovation and welfare effects (Schumpeter 1934; Acs and
Audretsch 1988; Wennekers and Thurik 1999; Baumol 2002). In the literature review there is a
parallel use of the two terms like entrepreneurship and economic development. Therefore if
anyone wanted to find study economic development of developing countries like Pakistan, he
cannot ignore the concept of entrepreneurship. Now the companies are not engaged in the battle
of competitive advantage only in gaining the market share, but now the battle is all about
grabbing the consumers’ attention through entrepreneurial activities. Now the recent literature is
more focused on the entrepreneurship’s contribution in the economic development. So our aim in
this study is not only to consider the entrepreneurship’s part in the economic growth but also the
way its working in the Pakistan. Like the researchers have concluded that although “economic
development theory can still be argued to lack a ‘general theory’ of entrepreneurship, one that
could encompass a variety of development outcomes, progress has been made in extending the
notion and understanding of entrepreneurship in economic development” (Naudé, 2008, p. 1).
Likewise the analysts are getting engaged in the entrepreneurial activities through new ventures
and SME’s. Entrepreneurship is recognized by government officials throughout the world not
only as “a key mechanism for enhancing economic development, particularly in regions where
entrepreneurial activity was once vibrant and is now lagging”, but also as “a good solution
because it provides a relatively non-controversial way to increase the proverbial pie, creating
jobs and enhancing per capita income growth” (Shane, 2005, p. 1).

Objectives

 To recognize the role of entrepreneurship in the economic development.

 How it works in Pakistan as being a developing country?
 Factors that governs the entrepreneurial activities
 Major challenges that are being faced by the Pakistani entrepreneurs

Literature Review

In recent years, economists have come to recognize the input-completing and gap-filling
capacities of entrepreneurial activity in innovation and growth, and the significant contribution
of innovation and growth to prosperity and economic welfare (Acs and Armington 2006;
Schramm 2006; Audretsch 2007). But before progressing forward we need to define the term. J.-
B. Say stated that the entrepreneur shifts economic resources out of an area of lower productivity
and moves them into an area of higher productivity. Schumpter was a man who adopted a totally
different and a unique approach while defining the term. He suggested that entrepreneurship
occurs in five conditions of newness: new goods, new production methods, new markets, new
sources of materials, or new organizations (Schumpeter, 1911). On his turn, Kirzner stated that in
economic development „the entrepreneur is to be seen as responding to opportunities rather than
creating them; as capturing profit opportunities rather than generating them” (Kirzner, 1973, p.
74). However a widely accepted definition of the term entrepreneurship has been evolved which
states that “Entrepreneurship is a process that involves the discovery, evaluation, and
exploitation of opportunities to introduce new products, services, processes, ways of organizing,
or markets” (Shane and Venkataraman, 2000, p. 219).
Moving on towards the economic development there is no single definition that may covers the
whole aspects of economic development and growth. It is mostly said to be improvement in the
living standard of people while creating new jobs and hence which other activity can create new
jobs more rapidly than the entrepreneurship. So how closely they are linked with each other.
Economic development is all about society’s well being. In this respect, economic development
represents “the process of structural transformation of an economy towards a modern,
technologically advanced economy based on services and manufacturing” (Naudé, 2008, p. 18).
In other words, economic development refers to “sustainable improvements in the material well-
being of a society, as measured for instance by GDP per capita, GDP growth, productivity and
employment” (Naudé, 2011, p. 7). All of these decisions are on the government level.

Methodology

Qualitative methodology will be using in order to understand the role of entrepreneurship in the
economic development. Different entrepreneurs will be interviewed and their financials will be
calculated in order to understand how much they contribute in the economy. The major
challenges they are facing and the drivers that motivated them to become entrepreneur. Different
sampling techniques will be used. Government publications and announcements will be analyzed
in order to get an insight of government’s role to promote entrepreneurship.