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What Is the Relationship between Entrepreneurship and Economic Development?

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  • Written By: Geri Terzo
  • Edited By: Shereen Skola
  • Last Modified Date: 18 November 2016
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Entrepreneurs often begin a career by launching a small business. In major and developed economies, small business is a significant driver of economic activity. Subsequently, entrepreneurship and economic development go hand-in-hand in many ways. Economic development is somewhat reliant on entrepreneurs because any lack of development for small business has the potential to slow an economy. Meanwhile, new business owners depend on a growing and stable economy to provide employment and generate sales.

Local and national governments devote large sums of money to the expansion of small businesses in a region. Government agencies extend loans and sometimes grants to qualifying entrepreneurs and possibly specific minority groups, including women. This is because of the heightened awareness that government officials share surrounding the fact that entrepreneurship and economic development are linked.

A government may be needed to set the stage for new business by first creating a community that is favorable to commerce. This could be through infrastructure development in addition to any financial incentives or motivations that might be provided. In doing this, policymakers are making it possible for entrepreneurship and economic development to occur. Once the conditions are ripe, new business owners can begin hiring employees, conducting commerce in an area, and supporting the development of a local or national economy.

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Private corporations also become involved with supporting entrepreneurship and economic development. Large investment banks maintain lending divisions that are meant to suit the financing needs of entrepreneurs. In addition to financing, lending institutions may also provide some level of training or support to new business owners to increase the chances for success. The role of venture capitalists is to provide equity to new businesses in exchange for a share of the eventual profits. As a result of private funding, entrepreneurs can develop new technologies and contribute to productivity, which can benefit local, national, or global economies.

Developed countries are not the only nations in which entrepreneurship and economic development are needed. In third-world countries where poverty has taken a hold on communities, the extension of small amounts of funding can help entrepreneurs to begin new businesses. The ramifications of this process, an activity known as microlending, are significant. Not only does facilitating new business in poor parts of the world help the entrepreneur to explore new opportunities, but it also gives poverty-stricken citizens greater access to goods and services. Subsequently, an entrepreneurship inspires economic development and creates better standards of living throughout the region.

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suntan12
Post 2

@Cafe41- The other day I was watching a documentary about an organization that trained women all over the world to develop their own business. Many of these countries were developing countries that really offered a ray of light to some of these women.

For example, they would teach Afghani women how to bake and run a bakery as well as teach some women in Rwanda to make and sell bracelets. Many of these women would then teach others in the community to do the same and it would foster significant growth that would not normally happen.

The organization would also teach the women how to find the resources that they needed to start these businesses. It did make a big difference in their communities. Many of these places had rich resources for farming and developing crops that proved to be great businesses to start. It was really a great program.

cafe41
Post 1

I was reading an article that said that about 89% of new jobs created came from small businesses. I never realized that small business owners had such a large impact on our economy. I also noticed that when small businesses get their tax burden cut or the government offers incentives in order to encourage new businesses to develop the businesses create a lot more jobs in the community.

Companies in this type of environment will expand and many new companies will emerge. The flipside is also true. When the business taxes are high and there are a lot of regulations it prevents businesses from hiring or expanding their business because of the added expenses.

In addition, many people that do have new ideas to start a business might hold back until the economic climate becomes more favorable. I think that small businesses are really the driving force in the economy.

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