The Role Of Entrepreneurship In Economic Growth And Development [Latest Update]

Economic growth is a process by which a nation's wealth increases over time. There are two main sources of  growth: growth in the size of workforce and growth in the productivity of that workforce (output per individual).

In addition to the above, economic growth can also be seen as an essential process where by the real per capital income of a country increases over time.

Entrepreneurship is seen as an important aspect of economic growth, as entrepreneurs play a vital role in economic development. They serve as catalysts in economic growth through the process of industrialization and business creation, leading to the production of goods and services.

Technical progress alone cannot lead to economic growth/development unless this technology is use by entrepreneurs to create goods and services . It is an entrepreneur that organizes and put to use labor, capital and technology.

Entrepreneur is seen as the creator of new enterprises that energized the economy.  According to Joseph A Schumpeter and his creative destruction theory, he believes that innovation and creativeness, distinguish entrepreneurs from other business men. The phrase "creative destruction theory" states that an entrepreneur does not only invent things but also exploits a novel way which has already been invented. 

For example, most developed countries today like: America (U.S.A), Russia, Britain, Germany, are what there are due to the work of entrepreneurs in the creation of goods and services. Companies like Google, Facebook, WhatsApp, Amazon are own by entrepreneurs. This shows that entrepreneurs are very important and understanding their role in economic growth is essential.

What is the Role of Entrepreneurship in Economic Development?

Entrepreneurs play so many important roles in economic growth, some of which include:

They are Creator of Wealth

One of the main role played by entrepreneurship in economic growth is the ability of entrepreneurs to create wealth for the economy.

Entrepreneurs mobilize the idle services of the public through the creation of industries and as a result, these industries intend utilize national resources to create goods and services, which is essential for economic growth.

Tangible goods  like: clothes, automobiles, household equipment and services such as internet services help boost the wealth of an nation. thus an entrepreneur is the creator of wealth.

They Improve the per Capital Income of a Country

Improvement of the per capital income is another role played by entrepreneurship in economic growth. 

Per capital income is the average income earned per person in a country in a year. It is calculated by dividing the country's total income for that period by its total population.

Entrepreneurs locate and exploit opportunities. They convert latent and idle resources like as land, labor, and capital into national income and wealth in the form of commodities and services sold to produce revenue.

They help to increase net national products and per capital income, which are important factors used in measuring economic growth.

They are Creators of Employment

Entrepreneurs generate employment directly and indirectly. Directly is through self-employment. Self-employment as entrepreneur offers the best way to independent and honorable life.

Indirectly is by setting up large and small scale business units which intend offer jobs to millions. Thus entrepreneurs help to reduce unemployment problems in a country.

They help in Balancing Regional Development

Another role played by entrepreneurship in economic growth is balancing regional development.

Entrepreneurs in both the public and private sectors contribute to the elimination of regional inequities in economic development. They set up companies in backward areas( areas of low competition) and this help them win the market and make market profit. 

This also lead to the creation of social facilities like: roads, markets and smaller businesses which bring about development in the area.

The central and state government might encourage this by offering subsidies to any entrepreneur who want to operate in backward areas.

They help Improve Living Standard 

Entrepreneurs create industries that alleviate shortages of critical goods and offer new products, both of which contribute to economic growth and development.

Also, due to excessive competition between entrepreneurs in the production of goods and services, each entrepreneur will want to produce the best product at the most affordable price to gain control of the market. The enable customers to consume the best products with great satisfaction and also increase varieties of  goods and services.

In small scale sector, it help to improve the standard of life for a common man due to the profit he/she generate in business. Hence, entrepreneurship is an essential tool for economic growth. 

They help in Economic Independence

Entrepreneurship is essential for national self-reliance. Industrialists help in the manufacturing of indigenous goods, this reduces importation of those goods from other nations or areas, thereby gaining  independency. 

Entrepreneurs also export goods and services on a large scale to to other nations, thereby reducing importation rate and increasing the scarce foreign exchange of the country. Such import substitution and export promotion helps to ensure  the economic independence of the country without which political independence has no meaning. This is very important role for economic growth.

Backward and Forward Linkages

An entrepreneur initiate changes which has a chain action. The setting up of an enterprise has several backward and forward linkages, for example the establishment of an automobile company generate several ancillary units, such as those producing spear parts, and expand the demand for iron, rubber ,steel etc.

An entrepreneur instills enthusiasm and a sense of purpose in others. They give an organization its momentum. Entrepreneurial behavior is critical to the long term vitality of every  economy.

What Are Some Entrepreneurial Strategies?

Entrepreneurs are critical to economic prosperity. Their success is as a result of the type of strategies they put in place. 

When we talk of entrepreneurial strategies, we think of the different decisions and actions taking within a company when launching a new product in order to achieve sustainable competitive advantage.

Entrepreneurs are willing to take the risk in creating something new, as such entrepreneurial strategies encompass techniques for innovation and running a business including all aspects of marketing and operations. The following are common entrepreneurial strategies:

1. Making strategic planning a top priority: That is, first carrying out a feasibility study on what, how, where and for whom you are producing.
2. Monitoring all competitors in the market: This help you remain at the top and also to know when it is necessary to change marketing strategy or product design.
3. Working to broaden(expand) your clients(customers): Having a large market is one step to a successful business. This could be done through advertisement on TV stations and Radio stations or flyers.
4. Stay close to your customers: This is important as you  help you get their suggestions, comments and their degree of satisfaction or dissatisfaction with your product.
5. Monitor profit margins: Knowing the profit make from each product is essential as will enable you to deal mostly with products that have a high profit margin.
6. Developing a cash-flow plan to monitor expenditures.
7. Setting up a good human resource management for company.
8. Creating a website for your company.

Related article:

• What Is Entrepreneurship And Who Is An Entrepreneur?
• Legal Personality and Its Meaning In The Business World
  

Final Thoughts on the Role of Entrepreneurship in Economic Growth

Based on this article, we can see that entrepreneurs are the backbone to economic growth. They create an environment filled with enthusiasm, by reducing unemployment and also making available different varieties of commodities. They are creators of  innovative ideas.

Entrepreneurs mobilize the idle services of the public through the creation of industries and as a result, these industries intend utilize national resources to create goods and services, which is essential for economic growth.